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Conflict-Sensitive Business Practice:Guidance for Extractive Industries

March 2005

Businesses operate in conflict zones and conflict-prone countries around the world. If theymake the wrong decisions on investment, employment, community relations, environmentalprotection and security arrangements, they can exacerbate the tensions that produce conflict.But if they make the right decisions, they can help a country turn its back on conflict, and movetowards lasting peace.

Companies in the extractive industries are on the front lines. Time and again in recent years,the exploitation of natural resources such as oil, timber and diamonds has fuelled conflictand generated corruption, exacting a heavy toll in lives and undermining faith in publicadministration. All too often, local populations have been excluded from discussions aboutthe control of natural resources, and have seen few or no tangible benefit from activitiescarried out in their communities. This leads to resentment, social discord and even violence.

Enlightened self-interest should steer businesses towards playing an active role in promotingtransparency and accountability in managing the extraction and sale of natural resources.Increasingly, a company’s reputation depends not only on what product or service it provides,but also on how it does so. By adopting a proactive approach, companies can reduce operationalrisks, promote stability, and improve relations with the communities in which they operate.Indeed, a company’s ‘bottom-line’ can no longer be separated from peace, development andthe other goals of the United Nations.

This publication offers practical suggestions for companies in the extractive industries seekingto adopt a conflict-sensitive approach to their operations. It provides ideas for fostering betterrelationships with stakeholders. And it gives examples of good practices that I hope will serveas an inspiration to companies operating in violent or volatile environments. I welcome thiscontribution to the efforts of the United Nations to promote responsible corporate citizenshipand universal principles, and I hope it reaches the wide global audience it deserves.

ForewordKofi Annan, United Nations Secretary General

Contents

Section 1 • Introduction

Section 2• Operational Guidance Charts

Section 3• Screening Tool• Macro-level Conflict Risk and

Impact Assessment tool (M-CRIA)• Project-level Conflict Risk and

Impact Assessment tool (P-CRIA)

Section 4• Flashpoint Issue 1: Stakeholder Engagement• Flashpoint Issue 2: Resettlement• Flashpoint Issue 3: Compensation• Flashpoint Issue 4: Indigenous Peoples• Flashpoint Issue 5: Social Investment• Flashpoint Issue 6: Dealing with Armed Groups• Flashpoint Issue 7: Security Arrangements• Flashpoint Issue 8: Human Rights• Flashpoint Issue 9: Corruption and Transparency

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Conflict-Sensitive Business Practice:Guidance for Extractive Industries

1 International Alert

Foreword

Business has an interest in peace. Some business also has an interest in being active in someregions where peace is insecure and unstable. And business has a role – sometimes knowingly,sometimes without full knowledge of what is happening – in shaping the conditions that decidewhether instability will evolve into a durable peace or collapse into open war.

In the past decade and a half – approximately since the end of the Cold War and the break-upof the USSR – the international community has succeeded in paying more attention than beforeto civil wars in developing countries and the suffering they cause. In that period, there havebeen over 100 wars, causing over 7 million deaths and uncalculated – and perhaps incalculable– material damage. Addressing this problem is a huge task, but the international community isresponding to it.

During that same period of 15 years, more peace agreements have been signed than wereachieved in the previous two centuries. Significant effort – but around 50 per cent of the agreementsbroke down within five years of being signed. They break down for various reasons – cheating,hidden agendas, miscommunication, political in-fighting by warlords threatened by the imminenceof peace, the hellish burdens created by the consequences of war and, perhaps most importantof all, because the long-term, background causes of war have not been properly addressed.

International Alert is a London-based international NGO that specialises in peacebuilding.As we have learned about the causes of war – inadequate economic development and deficientsystems of government – so we have also learned more about what is needed to prevent conflictsescalating into violence and what is needed to sustain peace processes.

With this, the role of the private sector has increasingly come into focus. It is not now acontroversial proposition to say that the private sector has a role as one of the factors thatdecide whether there will be war or peace. But it remains a challenge for many businessesto figure out how they can function normally in abnormal conditions, make a profit, contributeto prosperity, and help strengthen the prospects of peace and stability.

This guide to conflict-sensitive business practice is directed towards the extractive industries,which often find themselves close to the frontline of conflict, which can suffer from violentconflict both directly and indirectly, and some of which have been among the first to respondto the idea that business has a role in shaping the prospects for peace. Developed with theindispensable help and involvement of industry professionals, the guide is practical, it is readable,and it takes on the real problems faced by extractive industries.

The adoption of conflict-sensitive business practice by extractive industries could be one stepamong many that are being taken to improve the chances that this armed and warring planetwill steadily become a safer and more secure place. It is part of a cross-sector enterprise –involving governments, inter-governmental organisations, NGOs such as International Alert,and companies – that is contributing to the fight against one of the world’s great scourges.We welcome everyone’s contribution to it.

Dan SmithSecretary General, International Alert

2 Conflict-Sensitive Business Practice: Guidance for Extractive Industries

Oil, mining and natural gas companies often invest in conflict-prone societies – the nature oftheir business setting some limits on choice of risk profile. Most companies have no interestin exacerbating instability or violence, or otherwise becoming caught up in it. Experience showshowever, that all too often they lack the skills and experience to avoid doing so.

Despite advances in political risk methodologies and environmental and social impactassessment (ESIA) standards, and the wider corporate social responsibility sphere,fundamental gaps in company practice remain.1 These include capacity to understand existingor potential conflict and its actors, causes and consequences accurately; and to grasp fullythe spectrum of influence that a company’s investment may have on such conflict, directly,indirectly and at varying levels. Conflict-Sensitive Business Practice: Guidance for ExtractiveIndustries aims to help close this capacity gap and results from several years’ research anddevelopment led by International Alert, a London-based peacebuilding non-governmentalorganisation (NGO).

The publicationConflict-Sensitive Business Practice: Guidance for Extractive Industries consists of guidanceon doing business in societies at risk of conflict for field managers working across a rangeof business activities, as well as headquarters staff in political risk, security, external relationsand social performance departments. It provides information on understanding conflict riskthrough a series of practical documents, including:

• Introduction to conflict-sensitive business practice, including an overview of the regulatoryenvironment for doing business in conflict-risk states

• Screening Tool for early identification of conflict risk• Macro-level Conflict Risk and Impact Assessment tool• Project-level Conflict Risk and Impact Assessment tool• Special guidance on key Flashpoint Issues where conflict could arise at any point during

a company’s operation.

Each section includes additional resources where company staff can find further useful dataand analysis. The guidance as a whole is designed to mirror a basic project cycle for companiesengaged in mining, oil and natural gas, but can be picked up at any particular point in the cycle.It is also designed to complement current industry best practice in social performance, politicalrisk analysis and ESIA, adding in a ‘conflict lens’.

The researchThe research process has included International Alert’s contribution to, and learning from,the UN Global Compact Business Guide to Conflict Impact Assessment and Risk Management,published as a result of its ongoing policy dialogue, ‘The Role of the Private Sector in Zones ofConflict’. International Alert has been an active participant in this dialogue, which included aseries of regional workshops in Sub-Saharan Africa, Central Asia and Colombia. The GlobalCompact workshops provided an important forum for stakeholders to share experiencesand challenges in this area, and made a significant contribution to the research process.2

Preface

1. Advances in the academic research literature are particularly significant, but have not necessarily translatedinto best practice.

2. UN Global Compact dialogue on ‘The Role of the Private Sector in Zones of Conflict’. www.unglobalcompact.org/Portal/Default.asp


Taking this work forward, we conducted a thorough review of current best practice inpolitical risk assessment and ESIA in order to see where these were letting companiesdown in understanding conflict.3 When this process was complete, we convened a groupof representatives from some of the world’s leading oil, mining and gas companies, as wellas NGOs and consultancy firms specialised in political risk assessment and management.We brought the group together with specialists from the conflict transformation world totry and progress our goal of closing the capacity gap in companies’ understanding of theirrelationship to conflict.

The project steering group helped keep this aspiration anchored in business realities,emphasising the business case for developing greater capacity on conflict. The conceptand elements of conflict-sensitive business practice gradually evolved from this process.The content and arguments of the final publication are, however, International Alert’s andnot attributable to any of the steering group members.

We believe that Conflict-Sensitive Business Practice: Guidance for Extractive Industriesprovides an opportunity for companies concerned about improving their impact on hostcountries to begin thinking more creatively about understanding and minimising conflict risk,and actively contributing to peace. Although presented in a practical, step-wise format, it hasbeen developed as an approach as much as a fixed process, and further work needs to be doneby individual companies, industry associations and other professionals to adapt and furtherdevelop its core concepts through their own practices. Nonetheless, it is our hope that thispublication represents a significant step forward in discerning best practice in this sensitivearea, and towards promoting more peaceful interactions between companies and host societiesaround the world.

Project teamJessica BanfieldAdam BarboletRachel GoldwynNick Killick

3. Goldwyn, R. and J. Switzer (2004) ‘Assessments, Communities and Peace – A Critique of Extractive Sector Assessment Toolsfrom a Conflict-Sensitive Perspective’, in Oil, Gas and Energy Law Intelligence (OGEL), vol.2 issue 4, available fromwww.gasandoil.com/ogel/

4 Conflict-Sensitive Business Practice: Guidance for Extractive Industries

International Alert is grateful to the many individuals who have given time toward developingthis publication. First and foremost, the steering group of company representatives and otherexperts who met four times over the duration of the project and gave feedback, ideas andsupport throughout; and whose insights and willingness to share experiences and offerconstructive criticism were an absolutely invaluable resource for the research: Chris Anderson,Newmont; Titus Fossgard-Moser, Shell; Jos de la Haye, University of Leuven; Paul Kapelus,African Institute for Corporate Citizenship; Randy Gossen, Nexen; Gary MacDonald, independentconsultant; Alison McCallum, Environmental Resources Management; Tim McLaughlin,independent consultant; John Maltby, Control Risks Group; Anton Mifsud-Bonici, BP; GeraldPachoud, Swiss Department for Foreign Affairs; Jonathan Samuel, Environmental ResourcesManagement; Helen Sullivan, Shell; Rory Sullivan, Insight Investment; Jason Switzer,International Institute for Sustainable Development; Frank Vanclay, University of Tasmania;Michael Warner, Overseas Development Institute; Albert Wong, Shell; Luc Zandvliet,Collaborative for Development Action (CDA); and Dick van de Zeeuw, Netherlands Commissionfor Environmental Impact Assessment. Jason and Luc were particularly active members of theteam: Jason conducted a large piece of the early research; and Luc’s work made enormouscontributions both to this publication (three of the Flashpoint Issue papers are adapted versionsof products from the CDA Corporate Engagement Project) and the ‘business and conflict’ fieldmore broadly.

The research included field trips to Azerbaijan, Colombia and Indonesia. We are grateful to themany individuals there - from steering group and other companies, NGOs, community groups,governments and IGOs - who met with us and were willing to listen and add their ideas to theresearch and development process. They are too many to list here, but special thanks are duein Colombia to Camillo Gonzales, Indepaz; Alexandra Guaqueta, Fundaçion Ideas para la Paz;Peter Saile, GTZ; and Luis Ernesto Salinas, Colombia Global Compact, as well as Juan Dumasand Carlos Fierro of Futuro LatinAmericano (Ecuador); and in Indonesia Robert Humbersome,Newmont; and Enrico Aditjonro, independent consultant. While the bulk of work took place inLondon, the conversations facilitated by the above individuals were important in grounding theprocess in the real experiences of company/conflict interactions. We hope that future phasesof our and others work on conflict-sensitive business practice will focus on changing practiceand creating stronger relationships between companies and stakeholders in-country.

Other experts and consultants have contributed either whole papers, or feedback on materialand ideas throughout the process: Karen Ballentine; Fafo AIS; Robert Barclay, Planning andResettlement Solutions; Edward Bickham, Anglo American; John Bray, Control Risks Group;Denise O’Brien, UN Global Compact; Laurent Götschel, Swisspeace; Gavin Hayman, GlobalWitness; Bob Joseph, Indigenous Corporate Training; Danielle Lalive d’Epinay, Swisspeace;Helen MacDonald, Newmont; Harold Nicholls, Anglo American; Henry Parnham, PublishWhat You Pay; David Petrasek, Centre for Humanitarian Dialogue; Melissa Powell, UN GlobalCompact; Jo Render, independent consultant; Jill Shankleman, independent consultant;Andrew Sherriff, independent consultant; Mark Taylor, Fafo AIS; Salil Tripathi, AmnestyInternational; and Claude Voillat, International Committee of the Red Cross.

Acknowledgements


The International Alert project team also owe thanks to the many other staff past and presentwho contributed to the project: Phil Champain; Canan Gündüz; Diana Klein – who conductedconsultations along the route of the Baku-Tiblisi-Ceyhan pipeline in Azerbaijan and made animportant contribution to the methodology development; Damian Lilly; and Eugenia Piza-Lopez.Michael Griffin helped with his excellent copy-editing skills, and Provokateur providedprofessional design and production support.

Lastly, and of course by no means least, International Alert would like to thank and salute itsdonors, without whose financial support this project would not have been possible: Swiss Departmentfor Foreign Affairs, Human Security Division; UK Department for International Development,Conflict and Humanitarian Affairs Division; Foreign Affairs Canada, Human Security Programme;and Swedish SIDA.

6

ADB Asian Development BankATCA Alien Tort Claims Act (US)CSBP Conflict-sensitive business practiceCSR Corporate social responsibilityDRC Democratic Republic of the CongoEITI Extractive Industry Transparency InitiativeESIA Environmental and social impact assessmentEU European UnionIA International AlertIADB Inter-American Development BankIFI International financial institutionsIFC International Finance Corporation (World Bank)IHL International humanitarian lawIMF International Monetary FundILO International Labour OrganisationINGO International non-governmental organisationM-CRIA Macro-level Conflict Risk and Impact Assessment toolMNC Multinational companyNGO Non-governmental organisationOECD Organisation for Economic Cooperation and DevelopmentOHCHR Office of the UN High Commissioner for Human RightsPRA Participatory rural appraisalP-CRIA Project-level Conflict Risk and Impact Assessment toolPSA Production sharing agreementSME Small to medium-sized enterpriseTNC Transnational corporationUN United NationsUNDP United Nations Development ProgrammeUNHCR United Nations High Commission for Refugees

Abbreviations

Section 1

Introduction

Introduction

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesIntroduction

Company experience in Angola, Burma, Colombia, Indonesia, Nigeria and elsewhere demonstratesthat there are a range of conflict risks posed by investing in unstable states. Oil, gas and miningprojects can inadvertently trigger or sustain violence, or become the focus of resentment themselves.

Improved management systems are needed for companies to deal with the challenges of operatingin such contexts, specifically with regard to the incidence of violent conflict. This section describespractical frameworks to help understand and address the interaction between company investmentsand conflict to the mutual benefit of business and host societies.

Conflict-sensitive business practice: benefits for businessViolent conflict imposes a range of costs on companies. A ‘conflict-sensitive’ approach to doingbusiness – one that seeks to avoid these costs by developing informed conflict-managementstrategies – is therefore a strategic choice for company managers. At both a local level, throughimproved relationships with stakeholders, and at regional and national levels, companies canbenefit from avoiding, or handling conflict more effectively through a joined-up understandingof all conflict risks and impacts.

Box 1: Costs of conflict to companies

Direct costs Example

Security Higher payments to state/private security firms; staff time spenton security management.

Risk management Insurance, loss of coverage, specialist training for staff, reducedmobility and higher transport costs.

Material Destruction of property or infrastructure.

Opportunity Disruption of production, delays on imports.

Capital Increased cost of raising capital.

Personnel Kidnapping, killing and injury; stress; recruitment difficulties; higher wages to offset risk; cost of management time spent protecting staff.

Reputation Consumer campaigns, risk-rating, share price, competitive loss.

Litigation Expensive and damaging law suits.

Indirect costs Example

Human Loss of life, health, intellectual and physical capacity.

Social Weakening of social capital.

Economic Damage to financial and physical infrastructure, loss of markets.

Environment Pollution, degradation, resource depletion.

Political Weakening of institutions, rule of law, governance.

Source: adapted from Nelson, J. (2000) The Business of Peace: The Private Sector as a Partner in Conflict Prevention and Resolution(London: International Alert, International Business Leaders Forum and Council on Economic Priorities).


The range of costs imposed by conflict on companies are direct and indirect. Direct costs mostobviously relate to the increased cost of protecting staff and property. Indirect costs are those thatimpact the operating environment, only to rebound as costs on the company. Direct and indirectcosts imposed by conflict on companies are listed in box 1.

Conflict-sensitive business practice: benefits for communitiesConflict-sensitive business practice (CSBP) benefits host communities, as well as the wider regionaland international contexts, by ensuring that company investments avoid exacerbating violentconflict. Violent conflict clearly represents a threat to life, security, growth and prosperity foraffected communities. It undermines decades of development and destroys the social fabric ofa locality, country or region. CSBP can help companies avoid causing, triggering or acceleratingthese destructive dynamics to the mutual benefit of themselves and communities. It can also helpthem develop legitimate steps towards contributing to peace and stability in unstable states.

Early, consistent, meaningful and empowering stakeholder engagement processes lie at thecore of CSBP. Improved relationships between companies and communities help differentstakeholder groups to understand what the impacts of investment are likely to be. Transparencyabout company plans, schedules and prospects, and the creation of effective channels throughwhich stakeholders can raise and address problems, invites trusting relationships, reducesuncertainty over the future and creates a sense of shared ownership over a company’s operations.This is of real benefit to stakeholders who have a legitimate interest in company investments thatimpact their livelihood or landscape.

What is conflict?Conflict occurs when two or more parties believe their interests are incompatible, expresshostile attitudes or take actions that damage the other’s ability to pursue its interests. ‘Violence’is often used interchangeably with ‘conflict’, but violence is only one means among many thatparties choose to address a given conflict. Non-violent conflict is essential to social change anddevelopment, and a necessary component of human interaction. When violence erupts, however,a profound breakdown in social relationships occurs that will have destructive effects. CSBP aimsto prevent violent conflict, or contribute to its transformation towards peace.

Conflict is sometimes viewed as a separate ‘issue’ that can be addressed in isolation fromother ‘issues’ such as human rights, the environment or sustainable development. Howeverconflict is a cross-cutting theme or context – a violent manifestation of tensions that may havearisen for a variety of reasons (e.g. human rights abuses, environmental scarcity or degradation,unjust governance, economic insecurity). Conflict sensitivity, therefore, involves considerationof the spectrum of issues that may have, or may in the future, cause and trigger violence.

Box 2 lists different types of causes of conflict and box 3 shows the dynamic ‘conflict cycle’,along which conflicts often progress and regress through their duration.


Box 2: Causes of conflict

Structural/root causes: Pervasive factors that are built into the policies, structures or fabricof society and may create the preconditions for violent conflict (e.g. illegitimate government,lack of equal economic and social opportunity, lack of political participation).

Proximate causes: Factors that are symptomatic of the root causes of conflicts or may lead tofurther escalation (e.g. light-weapons proliferation, human rights abuse, objectives of politicalactors, role of diasporas).

Triggers: Single acts, events or the anticipation thereof that set off violent conflict or its escalation(e.g. elections, behaviour of political actors, sudden collapse of currency, increased food scarcity).

Box 3: Phases of violent conflict

Source: Rupesinghe, K. (1998) Civil Wars, Civil Peace: An Introduction to Conflict Resolution (London: Pluto Press).

Interactions between company investments and conflictA company’s investment interacts with conflict in many ways. Following are some commoncharacteristics and variables that can shape that interaction:

Dynamic two-way dimensions. Company investments may cause conflict (e.g. resettlement causesconflict between host and relocated communities), or may interact with pre-existing conflicts/tensions(e.g. hiring policy selects staff from one ethnic group, increasing resentment from others). At thesame time, conflict can impact a company investment (e.g. infrastructure may be targeted byconflict actors), imposing a variety of costs.

DURATION OF CONFLICT

PHAS

ES O

F CO

NFL

ICT

Sustained violent conflict

Durable peace

Stable peace

Unstable peace/latent conflict

Outbreak of violence Stalemate/ de-escalation/ceasefire

Return to unstable peace/latent conflict

Settlement/resolution


As the examples in box 4 show, conflict can become a dynamic context in which cause and effectfeed one other. Second-, third- and subsequent-order impacts tend to escalate conflict, drawingin other actors and geographical areas.

Geographical scales. Company investments can interact with conflict at all geographical scales,from the area closest to the project up to the national scale – for instance, through revenue streamsto government being used to purchase weapons – and beyond. Linkages exist between thesedifferent scales, with local-level tensions or conflict visible at national, regional or internationallevels; and vice versa.

Level of complicity. Companies seldom wilfully seek to start conflict, but company actions candirectly or indirectly contribute to it. There is ongoing legal debate and an emerging body of caselaw over the extent to which companies can be found to have been ‘complicit’ in war crimes when

The company causes…SOCIAL IMPACTS which contribute to conflict

Resettlement leads to a deepening of powerimbalances within a community.

Hiring policy inadvertently privileges staff fromone ethnic group, causing resentment in others.

Criminal gangs target compensation recipientsfor extortion.

The company causes…ENVIRONMENTAL IMPACTS which contributeto conflict

Company use of land leads to competition amongprevious land users for access.

Construction of pipeline across a river affectsdownstream water quality, exacerbatinghistorical tensions between two groups bycausing a power shift in favour of thoseupstream.

Damage to sacred sites of indigenous peoplefuels state/community conflict.

The conflict causes…SOCIAL IMPACTS which affect the company

Large proportion of youth become militarisedand intimidate local staff.

Populations dislocated by conflict lose access tolivelihoods and steal from the company, or tryto generate income through kidnapping staff.

Actions of regime to ‘pacify’ an area prior toinvestment damage a company’s ability todevelop good relationships locally, and itsreputation internationally.

The conflict causes…ENVIRONMENTAL IMPACTS which affectthe company

Conflict actors deforest area to generate incomethrough timber sales, causing uncontrolledrunoff that damages infrastructure.

Scorched-earth tactics of conflict actors damageoperations.

Conflict actors target oil fields, pipelines or otherstructures, causing spills.

Box 4: Potential interaction between project investments and conflict


operating in conflict zones, especially with regard to the principle of ‘known or shouldhave known’, relating to egregious human rights abuses. The question of legal accountabilityis discussed below, and is likely to become more pressing in the future. For the purposes ofCSBP, there is clearly a high responsibility and interest in preventing conflict, especiallywhen company actions have been a significant factor at either the local or national levels.For the business-case reasons outlined above, there is also an interest in acting to preventconflict where the company’s actions may be only a minor factor. Given its escalating anddynamic nature, any manifestation of conflict in a country should be a cause for concern forthe companies that operate there.

Box 5: Company/conflict scenarios

1. Displacement of local communities to clear land (e.g. for a mine) leads to conflict between communities and a company, and within communities.

2. Company operations exacerbate pre-existing tensions either among communities, or betweencommunities and regional/national authorities, triggering violence.

3. Revenue payments to government have a destabilising influence on already poor governancestructures, increasing the likelihood of conflict in the long-term.

4. Revenue is used to purchase arms, sustaining or escalating conflict.

What is the regulatory environment for doing business in conflict-risk states?Observation of national law in host societies is a primary obligation for companies, though lawsmay be inadequately enforced and fail to create the correct enabling environment for CSBP.Companies may avoid incurring the business costs associated with operating in conflict-riskstates if they actively uphold relevant international instruments, ensuring their operations arein line with international law and good practice, even when governments are too weak to do so.

Given the cross-cutting nature of ‘conflict’, which is best viewed as a context rather than anissue, it is hardly surprising that no single overarching, legal or voluntary instrument has emergedto date on how to conduct business in unstable states in a way that minimises conflict risk. Theabsence of regulatory clarity on how ethical business should be undertaken in conflict-affectedcountries leads to reputational pitfalls for companies.1

Various efforts are underway to close the gap in international frameworks for addressing,advising and holding companies accountable for their operations in conflict zones. Instancesof this momentum include international policy developments relating to the extractive industriessuch as the Voluntary Principles on Security and Human Rights and the Extractive IndustriesTransparency Initiative. Looking across sectors the UN Draft Norms on Responsibilities of TNCswith Regard to Human Rights and the OECD’s efforts to clarify the relevance of its ‘integrityinstruments’ in weak governance states, as well as ongoing initiatives from lawyers and researchersspecialised in international humanitarian law are further evidence of this trend.2 Over time, it is

1. In 2002, controversy erupted when the UN Expert Panel Report on Illegal Exploitation of Natural Resources in the DemocraticRepublic of Congo (DRC) criticised the activities of named OECD country companies in relation to their operations in the DRC andaccused them of acting ‘in breach’ of the OECD Guidelines for Multinational Enterprises. The report was itself criticised for itsapproach, in particular by the OECD and its member states for incorrect usage of the OECD Guidelines. Governments were quick to defend their companies, but the incident fueled NGO outrage and attention.

2. At the time of going to print, debate at the OHCHR as to the future status of this document is ongoing – with clarification possiblydue to emerge from the 61st session of the Commission scheduled for April 2005.


likely that these efforts, together with emerging case law under national jurisdictions e.g. underthe US Alien Tort Claims Act, will give rise to stricter rules governing companies’ legal responsibilitiesin relation to conflict.

Box 6: Legal questions for companies operating in conflict-risk states

In the absence of effective domestic rule of law, and scant global regulation of these sectors,what law applies? Is there international humanitarian law that applies to business entities?Can a company be held civilly or criminally liable when it uses slave labour, an international crime?What does the law say about corporations that deal with local combatant forces or privatemilitary companies? Do companies that provide financing to governments or rebel factionsbecome complicit in the abuses – such as pillage, plunder and the employment of child soldiers– committed by potential business partners?3

Respect for the norms contained in international legal frameworks and standards on businessand conflict issues is an important step toward conflict-sensitivity, and is likely to place companiesin a good position for the future. A summary of the most important legal instruments and voluntarystandards relating to operating in conflict-prone societies is shown in box 7.

Box 7: Summary of legal instruments and voluntary standards

3. Extract from Business and International Crimes: Assessing the Liability of Business Entities for Grave Violations of InternationalLaw (2004) (Oslo: International Peace Academy and Fafo AIS), which surveys the provisions of international and national law, and summarises relevant jurisprudence as a first step towards answering these questions.

4. As this publication went to print, the IFC was in the process of revising all of its social safeguard policies.

Issue

Employee relations

Resettlement

Indigenous people

Relevant international law

ILO Tripartite Declarationof Principles concerningMultilateral Enterprisesand Social Policy;ILO Declaration onFundamental Principlesand Rights at Work

Geneva Conventions andAdditional Protocols I and II

UN Draft Declaration on theRights of Indigenous Peoples;ILO Convention 169

Relevant code of conduct,principle or internationalstandard

UN Global Compact;UN Draft Norms on theResponsibility of TNCs andOther Business Enterpriseswith Regard to Human Rights;OECD Guidelines forMultinational Enterprises;Social Accountability 8000;Global Sullivan Principles

IFC Operational Directive 4.30on Involuntary Resettlement;4ADB Involuntary ResettlementPolicy;IADB Operational Policy onInvoluntary Resettlement;Equator Principles

World Bank Draft OperationalPolicy 4.10 on IndigenousPeoples


Security arrangements/dealing with armed groups

Human rights

Environmental impact

Geneva Conventions andAdditional Protocols I and II;UN Convention against theRecruitment, Use, Financingand Training of Mercenaries;International Convention for theSuppression of the Financing ofTerrorism

UN Declaration on HumanRights;Geneva Conventions andAdditional Protocols I and II;International Covenant onEconomic, Social and CulturalRights;International Covenant on Civiland Political Rights;Convention against Torture;Convention on the Rights of theChild;Convention on the Eliminationof All Forms of Discriminationagainst Women;International Convention on theProtection of the Rights of AllMigrant Workers;ILO Conventions 87, 98, 29, 105,100, 111, 138 and 182

Rio Declaration of the UNConference on Environmentand Development;Aarhus Declaration on PriorInformed Consent

Voluntary Principles onSecurity and Human Rights;UN Draft Norms on theResponsibility of TNCs andOther Business Enterpriseswith Regard to Human Rights;UN Code of Conduct for LawEnforcement Officials and BasicPrinciples on the Use of Forceand Firearms by LawEnforcement Officials

UN Global Compact;UN Draft Norms on theResponsibility of TNCs andOther Business Enterpriseswith Regard to Human Rights;Voluntary Principles on Securityand Human Rights;Amnesty International HumanRights Principles;The Red Cross Movement’sCode of Conduct onHumanitarian Assistance;OECD Guidelines forMultinational Enterprises;Global Sullivan Principles

IFC Environmental ImpactStandards;UN Global Compact;UN Draft Norms on theResponsibility of TNCs andOther Business Enterpriseswith Regard to Human Rights;OECD Guidelines forMultinational Enterprises;Equator Principles

Box 7 (continued)


Bribery and corruption/transparency

Trade

OECD Convention onCombating Bribery of ForeignPublic Officials in InternationalBusiness Transactions;OAS Inter-AmericanConvention Against Corruption;Council of Europe Criminal andCivil Conventions onCorruption; UN Conventionagainst Corruption

UN Security CouncilResolutions on Angola,Sierra Leone, DRC, Liberiaand Cambodia;EU sanctions;Unilateral sanctions;UN Convention to CombatTransnational Organised Crime

Wolfsberg Principles;UN Draft Norms on theResponsibility of TNCs andOther Business Enterpriseswith Regard to Human Rights;IMF Code of Good Practices onTransparency;Second EU Money LaunderingDirective;OECD Guidelines forMultinational Enterprises;Corporate Integrity Pacts;Extractive IndustriesTransparency Initiative;Financial Action Task Force;Basel Committee for BankingSupervisions; Global ReportingInitiative; Equator Principles;UN Global Compact

Kimberley Process CertificationScheme;Forest Stewardship CouncilStandard

Company role in conflict prevention and peacebuildingCompanies can adopt a range of strategies for managing corporate/conflict impacts. At a minimum,companies should comply with national regulations (even if host governments are not implementingor monitoring them effectively) and internationally agreed laws, conventions and standards, asdiscussed above. This is shown as ‘compliance’, at the base of the pyramid shown in figure 1.

Beyond compliance, companies should be aware of their ability to create or exacerbate conflictand develop mitigation measures to avoid or minimise negative impacts. This requires improvedconflict risk and impact assessment tools, and is shown as ‘do no harm’ at the centre of the pyramid.

Building on ‘compliance’ and ‘do no harm’ is the role companies can pro-actively take in contributingto the alleviation of the structural or trigger causes of conflict in the interests of a more stableoperating environment and safer world. This is shown as ‘peacebuilding’ at the top of the pyramid.


Figure 1: Strategies for managing company/conflict risk

Source: Banfield, J. et. al (2003) Transnational Corporations in Conflict-Prone Zones: Public Policy Responses and a Frameworkfor Action (London: International Alert).

At first sight, the concept of ‘contributing to peace’ can appear to be beyond companies legitimateactivities as private sector entities. On the contrary, CSBP simply enables companies to carry outtheir legitimate business activities in a manner that prevents conflict and promotes peace.

Figure 2: The ‘peacebuilding palette’

Source: Smith, D. et. al. (2004) Towards a Strategic Framework for Peacebuilding: Getting their Act Together (Oslo: NorwegianMinistry of Foreign Affairs).

Compliance

‘Do no harm’

Peace-building

Socio-economic foundations:• physical reconstruction• economic infrastructure/job creation• infrastructure of health and education• repatriation and return of refugees

and IDPs• food security

Reconciliation and justice:• dialogue between leaders of antagonist groups• grass roots dialogue• other bridge-building activities• truth and reconciliation commissions• trauma therapy and healing

Peacebuilding

Security:• humanitarian mine action• disarmament, demobilisation and reintegration of combatants• disarmament, demobilisation and reintegration of child combatants• security sector reform• small arms and light weapons

Political framework:• democratisation (parties, media,

NGO, democratic culture)• good governance (accountability,

rule of law, justice system)• institution building• human rights (monitoring law,

justice system)


Peacebuilding, as illustrated in figure 2 above, requires a spectrum of conditions and activities.Through improved conflict risk and impact assessment, stakeholder engagement and relationship-building processes, CSBP helps companies to identify conflict issues directly or indirectly impactedby a project, and design mitigating strategies to alleviate them and contribute to peace, in partnershipwith others, through core business, social investment or policy dialogue activities.

Box 8: Company/conflict interaction, with suggested mitigating steps

Conflict cause

Unemployment is a source ofconflict in the project area.While discriminatory laws havechanged, employer prejudiceremains intact and jobs tend tofavour one group over another.

State security forces commithuman rights violations.

Company/conflict interaction,identified through CSBP

Recruitment could favour theprivileged ethnic group, whichtends to have higher levels ofeducation and employmentexperience. This leads toescalation in inter-group rivalryand triggers reprisals againstthe company.

Company plans to hire privatesecurity firm, but also acceptsstate protection when a riotoccurs locally. Either of thesesolutions could angercommunities, and fuelconflict between them andthe company or state.

Mitigating step

Core business: Companydevelops affirmative-actionrecruitment policy andreconciliation-in-the-work-place programmes that fostermore positive inter-grouprelationships.

Social investment: Companydevelops and funds long-termvocational training programme.

Policy dialogue: Companyengages with local governmenton economic diversificationand equitable job-creationschemes.

Core business: Companyensures all private securitystaff’s human rights recordsare screened; and trains themin human rights, includinginternational human rightsand humanitarian law and theVoluntary Principles on Securityand Human Rights.

Social investment: Companyworks with credible thirdparty to develop trainingprogrammes for state securityforces; and sets up grievanceprocedures for the localcommunity.


Compliance

‘Do no harm’

Peace-building

Upcoming election a likelytrigger for violence.

Company could be perceived assupporting particular parties,and be targeted by opponents.Workspace could becometense if politicised by staff orothers campaigning on thepremises.

Policy dialogue: Companymaximises opportunities fordialogue with government onhuman rights, includingthrough cooperation with othercompanies. Also promotescorporate observation ofhuman rights law at theinternational level.

Core business: Companystrictly observes political partyfunding rules and does notallow premises, infrastructureor equipment to be used forcampaigning purposes. Alsoconducts training for staff onmeaning of ‘free and fair’elections.

Social investment: Companysupports wider civic awarenesstraining programmes.

Policy dialogue: Companyworks together with othercompanies to share informationwith election monitors onpotential sources of violence;and, through dialogue, toencourage political elites toconduct their campaignspeacefully.

Box 8 (continued)

Using the Conflict-Sensitive Business Practice GuidanceConflict-Sensitive Business Practice: Guidance for Extractive Industries is designed as a tool formanagers to help ensure their operations are conflict-sensitive. It enables them to anticipate,monitor and assess the interaction of business operations with local, regional or national tensions,triggers and accelerators of conflict, and design strategies that contribute to conflict preventionand peacebuilding. It has been developed as a generic set of guidance that companies could adaptto suit their specific context.


Ideally, companies will adopt a conflict-sensitive approach from the pre-investment phase, whichmeans an early analysis of potential conflict risk factors and interactions in all conflict pronesocieties (see box 9). Conflict-sensitive business practice can also be developed for projects thatare well underway, however, by adopting a ‘catch-up’ approach and fast-tracking the analysis.

Box 9: ‘No conflict here’

Relatively few major greenfield projects are developed in areas of actual violent conflict,precisely because of the risks entailed. More commonly, violence at the local level willfollow the start of operations.

Major investments inevitably alter traditional systems and, even in relatively peacefulenvironments, can easily lead to a heightening of tensions and possibly violence. In areasof pre-existing social tension, the odds on such an outcome increase.

The absence of violence in a project area is no guarantee of what might happen in the future.Understanding the tensions that existed prior to the arrival of the company at local andnational levels, and anticipating how the project might impact on them (and indeed on thewider socio-economic context) is fundamental to CSBP.

Box 10 shows the different recommended elements for developing a conflict-sensitive approachin sequence and with a brief summary of each of their functions. After reading this introduction,managers should turn to the operational charts in the next section to identify which documentsthey might want to use, depending on where they are in the project cycle.

Box 10: CSBP Guidance

Operational Guidance Charts. These link the typical project cycles of oil and gas or mininginvestments to the relevant elements of Conflict-Sensitive Business Practice Guidance and otherrecommended actions.

Screening Tool. A rapid assessment to identify key conflict issues early in the pre-investmentphase. The Screening Tool provides an initial analysis of the country and its conflict dynamics, flagskey issues of concern and identifies the level of risk, as well as potential ‘showstoppers’.

Macro-level Conflict Risk and Impact Assessment tool (M-CRIA). An expert-led national andregional level context analysis. This further explores issues of concern raised in the screening andidentifies potential interactions of the project with these issues.

Project-level Conflict Risk and Impact Assessment tool (P-CRIA). Building on the understandingof conflict generated thus far, P-CRIA takes analysis of the potential interactions between theproject and its context to a deeper level. Including processes for participatory analysis and decision-making with stakeholders, this tool helps companies to build trusting relationships and designshared actions that prevent conflict and build peace.


Flashpoint Issue papers. This collection of papers outlines key issues that commonly ariseat the company/conflict interface, describing likely impacts and good practice in each area.The list of issues is not exhaustive, but includes:5

1. Stakeholder Engagement2. Resettlement3. Compensation4. Indigenous Peoples5. Social Investment6. Dealing with Armed Groups7. Security Arrangements8. Human Rights9. Corruption and Transparency.

5. These issues emerged as priorities through International Alert’s research process. Where appropriate, other conflict-sensitive guidance required might include: Investment Closure; Illegal Mining; Contractors; In-Migration; and Environment.

Box 10 (continued)

ResourcesBailes, A. and I. Frommelt (eds) (2004)Business and Security: Public-Private Sector Relationshipsin a new Security Environment (Stockholm: SIPRI)

Ballentine, K. and H. Nietschke (2004) ‘Business in ArmedConflict: An Assessment of Issues and Options’ in Die Friedens-Warte, 79 (Berlin: Berliner Wissenschafts-Verlag)

Banfield, J. et al. (2003) Transnational Corporations in ConflictProne Zones: Public Policy Responses and a Framework forAction (London: International Alert)

Bennett, J. (2001) Business in Zones of Conflict: The Role of theMultinational in Promoting Regional Stability, paper preparedfor UN Global Compact (US: International Peace Forum)

Berman, J. (2000) ‘Boardrooms and Bombs: Strategies ofMultinational Corporations in Conflict Areas’ in HarvardInternational Review 22, no.3.

Campbell, A. (2002) The Private Sector and Conflict PreventionMainstreaming – Risk Analysis and Conflict Assessment Toolsfor Multinational Corporations.www.carleton.ca/cifp/docs/mncsriskassessmentreport12.pdf

Champain, P. (2002) ‘Assessing the Corporate Sector inMainstreaming Conflict Prevention’, in van de Goor, L. and M.Huber (eds) Mainstreaming Conflict Prevention: Concept andPractice, Conflict Prevention Network Yearbook 2000–01 (Baden-Baden: Nomos Verlagsgesellschaft)

Collaborative for Development Action, Inc. CorporateEngagement Project. www.cdainc.com/cep/

Fafo IAS and International Peace Academy (2004) Business andInternational Crimes: Assessing the Liability of Business Entitiesfor Grave Violations of International Law. www.fafo.no/liabilities/

Fund for Peace Conflict Assessment System Tool.www.fundforpeace.org/programmes/cpr/cpr.php

Gerson, A. (2001) ‘Peacebuilding: the Private Sector’s Role’,American Journal of International Law 95, no.1

Gerson, A. and N.J. Colletta (2002) Privatising Peace: FromConflict to Security (New York: Transnational Publishers)

Haufler, V. (2001) ‘Is there a Role for Business in ConflictManagement’, in Crocker, C.A., Hampson, F.O. and Aall, P. (eds)The Challenges of Managing International Conflict (WashingtonD.C.: US Institute of Peace Press)

Institute for Multi-Track Diplomacy, Business and PeacebuildingInitiative. www.imtd.org/initiatives-businesspeacebuilding.htm

Jungk, M. (2001) Deciding Whether to Do Business in Stateswith Bad Governments (Denmark: Confederation of DanishIndustries, Danish Centre for Human Rights, IndustrialisationFund for Developing Countries)


Lederach, J.P. (1997) Building Peace: Sustainable Reconciliationin Divided Societies (Washington D.C.: US Institute of Peace)

Miall, H., O. Ramsbotham and T. Woodhouse (1999)Contemporary Conflict Resolution (Cambridge: Polity Press)

Mitchell, J. (ed) (1999) Companies in a World of Conflict (Londonand Washington D.C.: Royal Institute of International Affairsand Earthscan)

Nelson, J. (2000) The Business of Peace: The Private Sectoras a Partner in Conflict Prevention and Resolution (London:International Alert, International Business Leaders Forumand Council on Economic Priorities)

Rupesinghe, K. (1998) Civil Wars, Civil Peace: An Introductionto Conflict Resolution (London: Pluto Books)

Sherman, J. (2001) Private Sector Actors in Zones of Conflict:Research Challenges and Policy Responses , IPA workshopreport (New York: International Peace Academy)

Smith, D. et. al. (2004) Towards a Strategic Framework forPeacebuilding: Getting their Act Together (Oslo: NorwegianMinistry of Foreign Affairs)

SustainAbility (2004) The Changing Landscape of Liability:A Director’s Guide to Trends in Corporate Environmental,Social and Economic Liability (London: SustainAbility)

UN Global Compact, Dialogue on Companies in Zones of Conflictwww.unglobalcompact.org/portal/default.asp

Wenger, A. and D. Möckli (2003) Conflict Prevention: TheUntapped Potential of the Business Sector (Boulder: LynneRienner)

Section 2

Operational Guidance Charts

Operational Guidance Charts

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesOperational Guidance Charts

PurposeThe Operational Guidance Charts give a very brief overview of possible company/conflict issuesthat can arise at the different stages of oil, gas and mining projects at both macro and projectlevels, showing the relevant stage of the Conflict-Sensitive Business Practice (CSBP) Guidance.They are included as an operational guide and attempt neither to summarise all the issues thatcan arise, nor convey full detail of CSBP Guidance, which is explained further in this publication,including practical steps and indications of the kinds of management resources required.

The CSBP Guidance is intended to begin from the earliest stages of a potential investment.For companies seeking to adopt CSBP part-way into a project cycle, an analytical teamshould be appointed to conduct a preliminary review assessing the level of the company’sunderstanding of existing or potential conflict risks, the state of relationships with stakeholdersand the effectiveness of risk management strategies. The team should then fast-track theScreening Tool, the Macro-level Conflict Risk and Impact Assessment tool (M-CRIA) and theProject-level Conflict Risk and Impact Assessment tool (P-CRIA) in order to revise managementstrategies in light of the conflict-sensitive perspective.

CSBP is designed to accompany the entire lifecycle of an investment, including additionalconcession areas that go into development later. Its steps are presented as a linear processin order to give approximate indications as to where each element is intended to be used. It isimportant to note, however, that its method is iterative and ongoing, requiring that regularanalysis of conflict-risk issues and impacts informs project design as it unfolds, and that thisanalysis is kept ‘live’ to accommodate both internal (new phases of development, staff changes,etc) and external (elections, increased violence, a change in government, etc) shifts to theoperating environment.


CSBP Guidance

Screening ToolA rapid assessment to identify key conflictissues early in the pre-investment phase.The Screening Tool provides an initial analysisof the country and its conflict dynamics, flagskey issues of concern and identifies the levelof risk, as well as potential ‘showstoppers’.

If a high conflict risk is identified, determinewhether there is potential to operate in a waythat it not likely to exacerbate conflict. ‘Show-stoppers’ relate to likely difficulties of operatingwithin business principles on human rights,corruption and environment issues, or withininternational humanitarian and criminal lawrelating to war crimes and human rights abuses.

Involve environmental/social/conflict specialistsinto process of selecting and bidding for assets.

Review concession contracts and policies/procedures of government and potentialpartners including state-owned companies,and include conflict-risk mitigation clauses.Key issues are:

• Confidentiality clauses/public domaininformation/transparency of all payments and revenues

• Standards for environmental and socialimpact and/or conflict risk assessmentand management standards relating toany involuntary resettlement

• Requirement for security arrangementsto be consistent with the Voluntary Principlesfor Security and Human Rights andinternational law

• Provision for civil society involvementin monitoring environmental and socialperformance

• Ensuring that governments are required toprovide finance for their share of projectsfrom the outset.

A. Geological investigations/evaluating potential concessions to bid for or buy

Typical activities

Oil and gasInteraction with governmentauthorities/other oil companies and reviewof geology, legal and commercialframeworks.

MiningInteraction with government authorities, reviewof geology, legal and commercial frameworks.


Establish block or country-specific investmentcriteria and conflict-risk managementstrategies, defining conditions required forfurther investment, e.g:

• Development by government of a revenuemanagement system

• Support from affected communities for thepotential development.

Bringing home-country governments andinternational organisations into projects, viaexport credit financing in order to influencehost governments can help achieve thesecriteria.

A. Geological investigations/evaluating potential concessions to bid for or buy (continued)


CSBP Guidance

At this stage the company needs to deepen itsunderstanding of conflict risk issues and likelyimpacts through a Macro-level Conflict Riskand Impact Assessment (M-CRIA), an expert-led national and regional level context analysisof conflict issues and stakeholders.This explores issues of concern raised bythe Screening Tool and identifies potentialinteractions of the project. For example,extractive industry investment may bring withit a risk of ‘Dutch Disease’, furtherentrenchment of corrupt or repressive regimesand the possibility of violent political competitionfor control of the enriched state.

M-CRIA involves engaging with keystakeholders at the national level to deepenunderstanding, start building relationships andidentify potential partners for future conflict-risk mitigation initiatives.

The Project-level Conflict Risk and ImpactAssessment (P-CRIA) should also begin.Building on the understanding of conflictgenerated thus far, P-CRIA takes analysis ofthe potential interactions between the projectand its context to a deeper level. Includingprocesses for participatory analysis anddecision-making with stakeholders, this toolhelps companies to build trusting relationshipsand design shared actions that prevent conflictand build peace. Such an approach is necessaryeven during pre-feasibility since the companyhas unavoidably become part of any existing orpotential conflict context from the moment thefirst geologist stepped into the locality. It will,however, be ‘light’ at this stage, addressingthe impacts and conflict issues aroundexploration itself.

B. Pre-feasibility

Typical activities

Oil and gasExploration studies and surveys to planexploration drilling within acquired concessions.

At this stage the company has paid anysignature bonus associated with the contract,is developing a commercial strategy for theasset should exploration be successful, andalso planning for exploration.

MiningVarious forms of exploration ranging from non-ground disturbing to major ground disturbing.Requires agreement of exploration permit withgovernment.


As part of CSBP, companies should at thisstage:

• Provide information in any areas wherefieldwork is undertaken about the plannedsurvey work, what it involves, when it willhappen, the expected duration and processesfor making ‘next step’ decisions

• Set up a conflict-risk management system as early as possible to address issues such as: temporary land acquisition; induced access management; cultural resources; useof natural resources; and consultation andcommunication

• Establish a ‘promise register’ to track all staffengagement with local communities: thisaccountability helps avoid futuremisunderstandings

• Set up codes of conduct between companiesand contractors, or companies and statesecurity forces, to ensure that explorationactivities do not adversely impact people livingor working in the area. Such arrangementsshould be shared locally and monitoredregularly.

Consult Flashpoint Issue papers for furtherguidance on Stakeholder Engagement;Resettlement; Compensation; IndigenousPeoples; Social Investment; Dealing with ArmedGroups; Security Arrangements; HumanRights; Corruption and Transparency.

B. Pre-feasibility (continued)


CSBP Guidance

M-CRIA and P-CRIA continue throughfeasibility, with conflict-risk mitigation stepsunderway to address some of the issuessurfaced, for instance through pressing forrevenue transparency and managementsystems. The participatory analysis componentto assist P-CRIA analysis and early impactidentification should be underway and deepenin relevant areas.

Conflict issues at this stage could include:

• Land use: relocation, resettlement andcompensation

• Environmental/natural resource impacts• Demands on existing infrastructure• Inadequate information/consultation• Security arrangements• Anxiety about distribution of benefits• In-migration/behaviour of incomers• Opportunities for extortion/theft financing

violent groups• Contested rights to exploration.

This is a key stage for making conflict-related‘no go’ decisions, in light of the ‘showstopper’issues raised initially in the Screening Tool,understanding of which will have deepenedthrough M-CRIA and P-CRIA.

Conflict-risk mitigation strategies at bothmacro and project levels will influence corebusiness project design at this stage, andinclude interventions through social investmentand policy dialogue, in partnership with otherstakeholders.


C. Feasibility

Typical activities

Oil and gasExploratory and appraisal drilling.

This stage aims to assess and quantify if thereare commercially viable reserves. For onshoreconcessions, exploration and appraisal drillingis the first stage at which there is an extensivelocal footprint. Where concessions are offshore,the on-shore footprint may still be muchsmaller and limited to logistics support activitiesonly.

MiningIn-depth investigations to estimate the amountof exploitable ore, extraction costs and salesprice.

In-depth risk assessment including: company’scapacity to manage operation; social impactassessment and management plans; extendedconsultation; closure plans; feasibility report;and mine design.


CSBP Guidance

M-CRIA and P-CRIA continue through fielddevelopment and construction, with P-CRIAmoving into deeper phases of participatoryanalysis with primary, secondary and indirectlyaffected stakeholders.

Effective communications strategies, bothinternal (to ensure that all relevant areas of thebusiness, including geologists, political risk andsecurity managers, staff from externalrelations, procurement and human resourcesdepartments, and management are involvedin CSBP); and external (to ensure accurateinformation about project timing, employmentcreation, size and timing of governmentrevenues is shared, and stakeholderconsultation processes are underway) mustbe in place at this stage.

Conflict issues can include:

• Behaviour of contractors and security staff• Infrastructure demands and development• Environmental impacts of development• Employment• In-migration• Construction camps• Resettlement• Community compensation• Cash injections to local economy.

CSBP analysis thus far will enable an initialconflict-risk mitigation strategy at both levelsto be developed to address issues acrossbusiness activities. This should be reflected inwork plans and schedules, and could include:

• Agreements with contractors includingsecurity staff that incorporate conflict-riskmitigation components

• Preference for local employment/suppliers• Establishing community relations

communications infrastructure

D. Field development/construction

Typical activities

Oil and gasThis is the stage when the development of thefield is planned in detail and then executed.

Includes deciding where temporary andpermanent facilities will be located and theroute of pipelines, hiring contractors to supplyequipment and undertake construction.

Environmental and social impact assessmentsand associated studies on oil spill andemergency response planning, resettlementand compensation plans will be completed.Decisions about location and furtherdevelopment of impact mitigation andmanagement plans are underway.

On-shore activities reach a peak of visibleactivity and include:

• Site preparation• Well heads• Separation/treatment facilities• Power plant• Increased oil storage• Facilities to export product• Flares• Gas production plant• Accommodation• Infrastructure• Export facilities (usually port)• Drill rigs.

MiningConstruction of mining, processing and wastedisposal features.

• Engineering of mine structure• Construction of infrastructure and facilities,

including power and water to the mine,and waste from it

• Processing facilities• Construction camp.


• Capacity development for central and localgovernment particularly with regard torevenue transparency

• Conflict-sensitive social investment projectsthat address conflict-risk issues and respondto genuine needs

• Development of outline exit strategy ensuringthat community dependence is avoided.



CSBP Guidance

Comprehensive conflict-risk managementstrategies at both macro and project levelsaddressing core conflict issues in partnershipwith others are well underway, with bothM-CRIA and P-CRIA regularly updated toensure this remains relevant and effective.

At the project level, avoid rewarding negativebehaviour or violence and maintain open linesof communication with affected stakeholdersat all times.

The M-CRIA and P-CRIA analyses andmitigation design, and CSBP Guidance inparticular on social investment, will ensure thatcompanies not only seek to ‘do no harm’through their activities but are actively seekingopportunities to contribute to peace throughall areas of their operations.


E. Operation/ production

Typical activities

Oil and gasFor both onshore and offshore projects this isthe stage at which there is likely to be lessvisible activity than was the case duringconstruction.

Typically government revenues will be lowduring initial years of production becauseexploration and development costs are beingoffset, but they will then start to rise.

In many cases, fields are developed in stages,or other exploration blocks are let nearby, sothat alongside production in some areas thereis exploration or development activity also beingcarried out.

Accompanying production, this is the stagewhere the greatest concentration of socialinvestment activity typically occurs.

MiningMining and processing, open pit orunderground; drilling; blasting, hauling;possibly smelting or refining; tailings disposal.

Accompanying mine operation, this is the stagewhere the greatest concentration of socialinvestment activity typically occurs.


Typical activities

Oil and gasDecommissioning and rehabilitation can occurafter each of the above steps if wells proveunviable, or other risks are realised:

• Plug wells• Demolish and remove installations• Restore site.

MiningClosure and rehabilitation:

• Mine decommissioning• Dismantling of buildings and infrastructure.

CSBP Guidance

If the country’s economy has, in the absence ofcoordinated efforts to promote diversification,depended on extractive industry production,closure is likely to pose threats to the centralbudget and, potentially, stability. Conflict canalso arise from community anxiety andfrustration with both company and government;and, within communities, as a result ofdemographic changes and power shifts causedby the investment.

When the long-term production profile is clearand timing of closure and decommissioningcan be forecast, start internal and externalconsultation on managing the social impactsof closure. Closure plans should be developedwell in advance, and follow the principles ofP-CRIA, with full participation of all affectedstakeholders and in line with internationalbest practice.

F. Closure/decommissioning and rehabilitation


Screening Tool

Figure 1: Illustration of CSBP Guidance

Corru

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Human Rights

Dealingw

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StakeholderEngagem

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SocialInvestmentSecurity

M-CRIA

Clos

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Pre-feasibilityFeasibility

ExplorationDevelopment

Opera

tion

P-CR

IA

Section 3

Screening Tool

Screening Tool


PurposeThe Screening Tool is the departure point for the Conflict-Sensitive Business Practice (CSBP)Guidance, and is particularly useful for new or ‘greenfield’ projects. It helps a company confirmwhether the country is at risk of conflict. It then offers a framework for an initial assessment ofthe type and level of conflict risk, which in turn alerts the company to the level of urgency requiredfor mainstreaming a conflict-sensitive approach. In worst-case scenarios, this includes raisingpotential ‘showstopper’ issues that may require a decision not to proceed with the investmentat all. In less extreme cases, when investment proceeds, the initial assessment made throughthe screening should be deepened using the Macro-level Conflict Risk and Impact Assessmenttool (M-CRIA) and the Project-level Conflict Risk and Impact Assessment tool (P-CRIA) duringsubsequent stages of the project cycle.

MethodThe screening consists of desk-based research by staff responsible for country risk at headquarterslevel and involves consultation of a variety of online sources to answer a list of questions, presentedbelow.

Project investment stageThe screening is done at the desk-based evaluation stage of potential concessions prior to biddingfor assets. While screenings are most relevant to greenfield sites, elements of the tool are importantfor understanding how a project will relate to its operating context at any stage of the project cycle.

CSBP synergiesThis is the first stage of implementing CSBP in a greenfield project but managers should also readthe CSBP Introduction.

Non-CSBP synergiesThe Screening Tool complements regular screening processes.

TimeframeTwo weeks.

ResourcesLimited to existing staff time.

Output1. Completed table flagging key conflict issues and level of risk, including awareness of potentiallegal risks under international humanitarian law and international criminal law.

IntroductionThe outbreak of violent conflict cannot be predicted in a scientific manner, but there are differentconditions that are associated with it, including high levels of corruption and widespread humanrights abuses (so-called ‘correlates’).1 This does not mean that conflict is inevitable wherever suchcorrelates are present. Equally, a conflict may break out where some or most of these correlatesdo not exist. However, a good overview of a country’s conflict correlates (and hence its ‘conflictcontext’) will provide a sense of the overall level of conflict risk, and help managers to plan ahead.

With the Screening Tool, information is organised under four categories, capturing four majorspheres relevant to the analysis of conflict in any society: governance, economic, socio-culturaland security. This enables the detection of a range of potential issues (such as those outlined asexamples in box 1) in any given context.

Box 1: Social spheres

4 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesScreening Tool

1. This tool builds on a wide literature on statistical correlates of war, derived from analysis of civil wars that took place between 1945and 2001. Most civil wars over the past 50 years have featured characteristics outlined in the Screening Tool. To find out more abouthow different issues may relate to conflict, see Correlates of War Project website, www.umich.edu/~cowproj/

Economic

GovernanceSocio-cultural

Security

Local companies/natural resourses/trade

Civil societyorganisations/ethnicity/gender

Security forces/armed groups/police

Corruption/humanrights/judicialinstitutions


Based on this information, the Screening Tool helps identify whether a country should indeedbe considered at risk from conflict, and what degree of priority should be given to mainstreaminga conflict-sensitive approach by working through the subsequent elements of this guidance.

Given the complex nature of conflict, the screening cannot be used as a definitive guide,but serves rather to highlight risk conditions. It is conducted in parallel to other screeningprofiles – adding the additional conflict lens required by CSBP – and should be seen as thefirst step towards more thorough research and conflict analysis.

The questions asked in the matrices below require choice of a basic red, amber or greenscoring – with red indicating a high risk, amber a moderate risk and green a negligible risk –although it is recommended that further detail about each question be noted by the staff memberconducting the screening in order to produce a more nuanced report on the research findings.A majority ‘green’ score indicates that the country probably does not need to be consideredat risk; a majority ‘red’ conversely indicates that the level of conflict risk is high and thereforethat CSBP approaches should be mainstreamed across business activities right from the start.

It is, however, important in using the Screening Tool not to take too schematic an approach,and to keep ‘common sense’ to the fore. There are certain indicators and information that willof course qualify the crude traffic light scoring. The questions relating to ‘security’, for instance,are the most critical in indicating the level of conflict risk, and a high score in this section shouldraise serious questions as to whether the investment is wise, particularly on questions relatingto existing conflict. Sources such as the International Crisis Group list of countries currentlyin crisis (www.crisisgroup.org) should be consulted as part of the screening so that any existingor recent conflict is clearly noted. Additional considerations relating to international humanitarianlaw, international criminal law and companies’ own policies and standards should also beconsidered at this stage, as described in box 2 on potential ‘showstoppers’, not least becausethey could indicate that proceeding with a particular investment in a particular context mayincur unavoidable and serious conflict impacts and legal risk.

The Screening Tool matrices are shown overleaf, with ‘sample findings’ for a fictional countrycontext.


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en in

pow

er?

How

do

inte

rest

gro

ups

expr

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diss

ent?

How

are

rul

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ndre

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tions

com

mun

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ed?

How

ope

n is

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regi

me

toin

tern

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?)

Rat

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Lim

its o

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e ri

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o fr

ee s

peec

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el g

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d le

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inst

abili

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abili

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Cou

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tran

sitio

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repa

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con

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Reg

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chan

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abili

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sta

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repr

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Has

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Are

ther

e si

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Rat

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A s

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t dec

line

in a

nid

entif

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e gr

oup’

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onom

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tron

gly

corr

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e ou

tbre

ak o

f vio

lent

con

flic

t.

Econ

omie

s de

pend

ent o

n a

narr

ow r

ange

of n

atur

alre

sour

ces

have

a h

ighe

rpr

open

sity

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ivil

war

.

Econ

omic

dri

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of c

onfl

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anco

ntri

bute

to it

s lo

ngev

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ndha

ve p

artic

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ions

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inve

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s.

Gin

i coe

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dist

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C. S

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Corr

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Doe

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larg

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Doe

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sign

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rban

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Doe

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iffer

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ethn

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Rat

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Hig

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empl

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qual

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Rat

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Cou

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rge

popu

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an

incr

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Sour

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C. S

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Corr

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Is th

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high

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ear

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oper

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gro

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bett

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edu

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anot

her

grou

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eloc

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to o

r w

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coun

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vio

lenc

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Is in

fras

truc

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out

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the

maj

or u

rban

cen

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wea

k?

Rat

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Rap

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opul

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n gr

owth

and

dem

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cha

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impo

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ocia

lte

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n a

popu

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at o

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them

selv

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Envi

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grou

p hi

ghly

dis

adva

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Sou

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Acce

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edu

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indi

cato

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th fo

r po

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ocia

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lusi

on,

as w

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s go

vern

men

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Whi

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over

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last

five

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stat

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forc

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nder

paid

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Are

any

stat

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posi

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grou

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?

Rat

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Gov

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focu

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ilita

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sta

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prio

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forc

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pub

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tate

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d ha

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rdi

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rein

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Und

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men

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A cl

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conf

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Box 2: Potential investment ‘showstoppers’ – complicity in human rights abuses

In some states, probable conflict risks of investment at the local, regional or national level can beso high that from the conflict-sensitive perspective it is unwise for a company to proceed. A majority‘red’ score in the Screening Tool analysis points to a high possibility that such circumstances exist.

One way of assessing this is to examine existing internal principles and standards in the light ofthe findings of the Screening Tool. These include company policies on human rights, corruption,business ethics and environmental issues. It should be possible to anticipate the extent to whichit will be possible to adhere to these given the risk factors that the assessment has identified.

Another way of assessing whether a situation crosses a threshold where impact can be benevolentis through consulting international humanitarian law and international criminal law in order tounderstand the types of abuses that are prohibited, and where corporate ‘complicity’ in them willopen a company to potential legal action. They are included in the Screening Tool under the securitysection, but require special attention.

A number of national jurisdictions permit the criminal or civil prosecutions of business entities oncertain grave breaches of international law. In the past, individual officers and managers of businessentities have been held accountable in civil and criminal courts for violations of international criminallaw, including genocide, crimes against humanity and war crimes. Such cases have most recentlystood in US courts under the Alien Tort Claims Act and often relate to subsidiaries or joint venturepartners. The doctrine of complicity has developed to address the way in which companies areunlikely to be the direct perpetrators of crimes, but rather accomplices to (or ‘aiding and abetting’)the violence through their relationship with state or non-state armed groups.

The most frequent violations of international humanitarian and criminal law in which companiescan be found complicit are:

• Use of forced labour/enslavement• Pillage and plunder• Deployment of child soldiers• Use of land mines.

A company can be directly implicated by its proximity to such abuses, or indirectly through thepayment of revenue to governments engaged in them. While the number of cases found againstcompanies on such charges is few, there is evidence that policy norms are hardening towardstricter rules. In the meantime, civil society organisations are quick to highlight situations ofcompanies’ proximity to such practices, impacting on reputation and share price. CSBP requiresthat companies be aware of their relationship to such activities and take all possible steps toavoid fueling them, including taking ‘no-go’ decisions where necessary.

For further information on these legal issues see Business and International Crimes: Assessing the Liability of Business Entities forGrave Violations of International Law (2004) (Oslo: International Peace Academy and Fafo AIS).

Section 3

Macro-level Conflict Riskand Impact Assessment tool(M-CRIA)

Macro-level Conflict Riskand Impact Assessment tool (M-CRIA)1

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesMacro-level Conflict Risk and Impact Assessment tool (M-CRIA)

1. A full list of useful documents is attached (see Resources), but this document has drawn in particular on three publications: Nelson, J. (2000) The Business of Peace: The Private Sector as a Partner in Conflict Prevention and Resolution(London: International Alert, International Business Leaders Forum and Council on Economic Priorities); International Alert, Africa Peace Forum, Cecore, CHA, Fewer, Saferworld (2004) Conflict-Sensitive Approaches to Development, Humanitarian Assistance and Peacebuilding: A Resource Pack. www.international-alert.org/publications.htm; andUN Global Compact (2002) Business Guide to Conflict Impact Assessment and Risk Management. www.unglobalcompact.org

PurposeExperience indicates that traditional political and financial risk assessment and managementprocesses are inadequate in analysing and assessing the full range of issues that might cause,trigger or exacerbate violent conflict. They are limited to looking at the impact of certain externalfactors on the investment. Less attention is paid to how the investment might impact on the widerconflict context. The M-CRIA tool addresses this gap.

M-CRIA provides companies with a detailed understanding of the conflict situation in a givencountry in order that they can:

• Make informed decisions on investment• Understand the existing or potential causes and drivers of conflict• Understand the roles, interests and capacities of major conflict stakeholders• Develop transparent relationships with a broad cross-section of society• Make a preliminary assessment from the macro perspective of their impact

on conflict dynamics (and vice versa)• Make a preliminary assessment from the macro perspective of possible conflict

prevention or peace-promoting priorities• Develop institutional capacity on conflict-sensitive business practice (CSBP).

MethodM-CRIA builds on the preliminary findings of the Screening Tool and uses a combination of deskresearch, targeted consultations and internal company brainstorming. It develops a thoroughcontext analysis focusing on the macro level. The information gathered during the process isdiscussed inter-departmentally to identify company/conflict impacts and begin the design ofmitigating actions. The material should be regularly updated.

Project investment stageFor greenfield sites, M-CRIA should be undertaken at the pre-feasibility and exploratory stages.For existing projects, it should be carried out as soon as possible following the CSBP screening.

CSBP pre-requisitesM-CRIA follows on from and builds on the Screening Tool. It focuses on the national level (includingthe relevant regional and international factors) and informs the more localised Project-levelConflict Risk and Impact Assessment (P-CRIA).

Non-CSBP synergiesM-CRIA complements existing company political and financial risk management processes andshould initially be undertaken simultaneously.

TimeframeM-CRIA should take approximately three months, although it is designed to be updated regularlythroughout the project cycle.


ResourcesM-CRIA requires only limited financial resources. The main requirement is a small team with theright mix of skills, including conflict analysis expertise, knowledge of and sensitivity to the localcontext and history, fluency in local language(s), and facilitation and interviewing skills. Ultimately,the quality of the analysis depends on the skills and expertise of those who undertake it. Althoughit is likely that such a team will include external consultants, it is important that company staffare involved in the process. This ensures that the company benefits fully from the understandingand knowledge acquired during M-CRIA.

Outputs20 – 30 page conflict analysis, including:• Conflict profile• Issues analysis• Stakeholder analysis• Summary of interacting issues• Assessment of two-way project/context and context/project impacts• Initial mitigation measures• Series of tables providing senior management and other interested company stakeholders

with an accessible summary of the analysis.


1. IntroductionConflict analysis is the systematic study of the profile, issues and stakeholders that shape anexisting or potential conflict, as well as factors in the interaction between the three. It helpscompanies gain a better understanding of the environment in which they operate and their rolein that context. Conflict analysis is therefore a central component of CSBP.

Most companies have long-standing practices for carrying out political risk analysis at the countryand project levels. In many cases, however, these are ad hoc, ‘top-down’ procedures that tendto rely heavily on externally commissioned work and desk-based research. They do not make fulluse of more sophisticated conflict-analysis tools developed by other sectors, such as the developmentand humanitarian aid sectors. Most focus on limited political and financial issues and are informedby a narrow range of high-level, political and international contacts.2

While such analyses are adequate in some countries, they are less likely to suffice in others wherethere may be significant tensions at the national and/or project level, and where political and legalsystems do not provide transparent and inclusive mechanisms for addressing grievances. In suchcases, the company often becomes the focus of those grievances and may find itself held locallyresponsible for addressing them.

It therefore becomes a priority for companies planning to invest in conflict-risk countries to establisha thorough understanding of the national and regional context as a basis for anticipating andmitigating their exposure to risk, and identifying their potential contribution to the political, security,social and economic development of the country and region in question. Without such anunderstanding, even the best-intentioned companies may find themselves inadvertently heighteningtensions or triggering conflict, to the detriment of their own investments.

2. ApproachThe process for undertaking the M-CRIA tool can be summarised in seven steps:

Step 1Building on the findings of the Screening Tool, use secondary sources (see Resources below)to develop a more detailed understanding of the history and background of any existing orpotential conflict, as well as the broader social, political, security and economic context, the keyactors/stakeholders, and how these elements relate to one other. This provides a basis for theconsultations in Step 2.

Step 2Conduct one-on-one consultations with approximately 20-30 national and regional representatives(e.g. politicians, NGOs, media actors, religious leaders, academics, business owners, internationalcommunity officials), identified through Step 1. They are valuable sources of information, helpingto identify further issues and stakeholders relevant to the project.

Step 3Categorise key issues and concerns under the headings used in the Screening Tool:political/governance; economy; socio-cultural; and security, adding a regional/international strand.Write the findings up into a detailed, draft conflict analysis report.

2. Nelson, op. cit. Also see Goldwyn, R. and J. Switzer (2004) ‘Assessments, Communities and Peace – A Critique of ExtractiveSector Assessment Tools from a Conflict Sensitive Perspective’ in Oil, Gas and Energy Law Intelligence (OGEL), vol.2issue 4. www.gasandoil.com/ogel/


Step 4Discuss the report internally with relevant departments, agreeing on the critical (potential) conflictissues. This can then lead into a discussion which focuses on those issues on which the project islikely to have the greatest impacts (positive and negative). The information collected thus far shouldthen be summarised into a matrix format.

Step 5Develop an initial mitigation strategy in the form of proposed actions to address impacts identified.

Step 6Add the findings of this internal impact and mitigation discussion into the report. Synthesise thereport into tables.

Step 7To the extent possible, given constraints of confidentiality or other restrictions, discuss the findingswith a mixed group drawn from those consulted in Step 2, as well as internal company stakeholders,in order to assign responsibility for different areas. Then proceed to implementation, ensuringthat the M-CRIA team regularly reviews the analysis itself, and progress with the mitigation plan.

Box 1: Ensuring analysis is ‘conflict-sensitive’

In undertaking M-CRIA, care must be taken that the process of gathering information on what arelikely to be sensitive issues does not in itself cause tension. The best way of avoiding this is toensure that a skilled and experienced team leads the process.

In many situations, the use of the term ‘conflict’ may itself be controversial. This is particularlytrue in cases where conflict is potential rather than actual, or in repressive regimes where theconflict is officially characterised as something else (e.g. ‘disturbance’, ‘dispute’, etc). Governmentrepresentatives and indeed other stakeholders may well take offence at the idea of a ‘conflict’analysis. In such instances, ‘context’ analysis may be a more appropriate term and indeed can beused interchangeably with ‘conflict’.

The information that needs to be collected through the desk research and consultations duringSteps 1-3 is broken down into three interconnected parts, as illustrated in figure 1:

• Profile of the context and any existing or potential conflicts• Key issues underpinning existing or potential conflict• Mapping of relevant stakeholders.

Although the framework suggests differentiating the issues and stakeholders, it is critical toconsider the interactions and dynamics both among and between them. For example, how dothe country’s history and culture affect societal attitudes towards democracy and human rights?How do different stakeholders relate to one other?


2.1 Profile

Box 2: Features of the macro-level profile

The categorisation used below is designed to ensure that all major contextual elements arecovered in a broad 1-2 page overview.

1. Key factsPhysical geography, population size and make-up, climate, political system, military size andstructure, macro-economic indicators, social indicators (poverty, literacy, health, etc), religion(s),language(s).

2. HistoryPolitical evolution, occupation/colonisation, past conflicts, mass migration, relations withneighbouring states.

3. Political/social profileGovernment structures (national and local), elections, reform processes, human rights record,status of media/judiciary/civil society, exclusion of minorities, status of women, importance ofreligion.

4. Economic profileMajor industries, employment, rural/urban, natural resources, business associations, foreigninvestment, debt, trading partners, regional/international bodies.

5. ConflictConflict/stage, geographical locations, critical events, peace processes, role of internationalcommunity, role of neighbouring states, primary actors and stated agendas, number of deaths,infrastructure damage, refugees/internally displaced people.

Figure 1: Framework for analysis3

Profile

Stakeholders Issues

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s Dynamics

Dynamics

3. Figures 1, 2 and 3 are adapted versions of diagrams for conflict analysis in International Alert, Africa Peace Forum, Cecore,CHA, Fewer, Saferworld (2004) Conflict-Sensitive Approaches to Development, Humanitarian Assistance and Peacebuilding:A Resource Pack. www.international-alert.org/publications.htm


A context profile is designed to provide a background narrative to the more detailed analysis ofcurrent or potential conflict issues and stakeholders, and serves as the introductory section to thefinal report. It gives a brief characterisation or overview of the context, and enables a preliminaryidentification of key stakeholder groups as a basis for subsequent consultations. It is importantto recall that conflict and potential conflict issues often arise in seemingly unlikely places so, inputting together the profile, it is important to look beyond macro-level political conflicts (e.g. statevs. insurgents) to find the issues within society that contribute to violence. In many countries theremay be more than one violent conflict. The causes and stakeholders involved in these conflictswill be linked to varying degrees.

Box 2 suggests an outline for the context profile. The list is not exhaustive and should be adaptedaccording to the specific context. Information gathered with the Screening Tool will help identifyrelevant issues. The profile has an additional value as a context overview which can serve both asa basis for developing greater institutional knowledge and as a country introduction for all staff.Having completed the initial profile, the M-CRIA team should move on to examine issues andstakeholders in greater depth through desk research and consultation.

2.2 IssuesThe issues analysis is designed to identify the most important factors underpinning an existingconflict, or threatening to lead to conflict if not properly addressed. The resulting analysis is nota comprehensive study of the society but rather a mechanism for pinpointing those issues whichare causing or threatening instability. These may be relatively obvious, like the presence of anarmed separatist group in one region of the country, but the analysis should also include moresubtle threats, such as the impending removal of US and EU textile quotas in an economy dependenton textile exports. At this stage, the analysis treats the operating environment as distinct from theanticipated project itself. Potential risks associated with the interaction between the operatingenvironment and the planned project will be identified later.

Box 3: Conflict not company

A key failing of most existing corporate political/financial risk assessments is the sole focus onviewing conflict through the lens of the company. The question asked tends to be ‘what might theimpact of conflict be on the project?’ not ‘what is the conflict?’. M-CRIA takes the context of anyexisting or potential conflict as its starting point, thereby ensuring that the full range of two-wayimpacts can be understood, anticipated and addressed.

In undertaking the issues analysis, it is important to bear in mind that there is never one singlecause of conflict, but a number of inter-related factors which need to be prioritised in terms oftheir importance. These can be understood as:

• Structural or root causes. Pervasive factors that are built into the policies, structures and fabricof a society. Examples could include groups excluded from political participation, economic orsocial opportunities; systemic corruption; or inequitable distribution of natural resources. Structuralcauses of conflict are inevitably the most complex and long-term, and pose a constant threat.


• Proximate causes. Factors that are symptomatic of the root causes and may heighten the riskof violent conflict, or exacerbate and perpetuate existing conflict. Examples could include theavailability of light weapons (suggesting weak or corrupt security structures), widespread humanrights abuses (suggesting poor governance or repressive regime) or the objectives of politicalactors. Proximate causes can also be valuable in providing the basis for conflict indicators thatcan be monitored over time.

• Triggers and escalating factors. Single acts, events or their anticipation that may escalateviolent conflict. Examples include elections, political assassinations or other behaviour of politicalactors, actions of foreign investing companies, sudden collapse of currency, increased foodscarcity or natural disasters. A series of triggers and escalating factors over time may indicatea structural cause.

The causes and dynamics of conflict can evolve over time. In protracted conflicts, the originalroot causes may diminish in importance as a result of changes wrought by the war itself,generational shifts or developments in the geo-political environment. This emphasises thecentral importance of monitoring and updating the conflict analysis throughout the project lifecycle,thereby ensuring that understanding of the two-way project impacts and resulting mitigationmeasures remain up to date and relevant.

Issues identified in the Screening Tool and through the profile analysis, as well as other issuesthat may arise, need now to be explored in sufficient depth to provide an understanding of eachissue’s complexity. For example, ‘corruption’ may have been identified during the CSBP screeningas an issue for the country in question. The task now is to understand the full complexity ofcorruption in that country. In which departments or ministries are people engaged in corruptactivities located? What explains their presence in particular departments? Did they ‘purchase’their positions? Who from? What specifically about their behaviour leads them to be labelled ascorrupt? What explains this behaviour (e.g. low wages compared to the funds for which they areresponsible, debts owed for the purchase of position, pressure for kickbacks from others withingovernment or outside?) Are individuals or organisations working within or outside governmentto reduce corruption? How effective are they? What opportunities exist to support their work?

The skill-set of the M-CRIA team is critical to ensuring that a full grasp of the issues and conflictdynamic is achieved through the assessment. This type of issue exploration is also likely to identifynew issues and stakeholders for consideration.

The analysis uses the same four spheres of the Screening Tool – political/governance; economics;socio-cultural; security; plus a regional/international dimension – as a way of categorising thekey tensions which have led, or might lead to violent conflict, while recognising at all times thelinkages between the different spheres. Box 4 gives some insights into the kind of issues thatmight arise under the various spheres, and the kind of detail into which M-CRIA should go.

As issues are identified, there will be overlap between the different spheres, and between theissues and stakeholders involved. These overlaps are an important part of the analysis process.Issues do not exist in isolation, so an understanding of their inter-relations is critical to gaininga robust analysis.


Box 4: Sample questions to guide M-CRIA conflict issues analysis

For each section, list and analyse all the pertinent issues, being sure to collect possible ‘triggeror escalating factors’, as well as issues that are positive indicators, where appropriate. For theregional/international section, also use the political, economic, socio-cultural and securityheadings, but viewed from the regional/international perspective. The questions shown beloware indicative only and are not comprehensive or exhaustive. Sensitivity must be applied in thegathering of the information.

Political/governance. If the country is governed by a multi-party democracy, how strong is thesystem? Are the political parties themselves democratic? Are there functioning regulatory andlegal frameworks? What role does the international community play in the governance ofthe country? Does the government provide basic services (health, education, infrastructure)?Is corruption an issue? Is there an independent judiciary? How does political participation work(or not) in the country? What is the human rights situation?

Economic. Can the country be considered developed, developing or is it underdeveloped? Are someregions or social groups substantially more or less well developed than others? What is thedistribution of wealth? Is there competition between social groups over use and ownership of land?Is the economy relatively diversified, or heavily reliant on one or two primary commodities? Is therea hereditary labour situation (e.g. caste system)? Do some social groups enjoy better accessto employment than others as a result of their educational background or linguistic abilities?What are the migration patterns?

Socio-cultural. Are there identifiable disparities between different ethnic groups?Is political ideology associated with any particular ethnic groups? Are women systematicallyexcluded from political decision-making or economic power? Do large groups of unemployedyoung men present a social challenge for the country? Are people discriminated against becauseof their religious beliefs? Does the state officially subscribe to a particular religion? Are peopleforced to change their traditional religious practices as a result of state policy or social pressure?What role does the media play?

Security. Are there problems with violent crime, banditry or kidnapping? Do the perpetrators ofthese crimes operate with impunity? Are particular social groups particularly involved (either asperpetrators or victims)? Does the state ensure physical security equitably? Are small arms andlight weapons readily available? Has there been a violent conflict within the past 10 years?Have the armed forces that were involved in the conflict found alternative employment?Is society militarised?

Regional/international. Do the political interests of the country conflict with those of majorinternational powers? Does the country have a colonial history? What is its current relationshipwith the former colonial power? What economic influence do other actors have? Do any neighbouringcountries have an economic interest? Is the ethnic majority of a neighbouring country present asan ethnic minority? Is a neighbouring country affected by a violent conflict? Do any internationalpowers have a security interest in the country? Is the country on a trade route for illicit goods(e.g. drugs, weapons)?


2.3 StakeholdersThe stakeholder analysis is an integral part of M-CRIA. Since it involves mapping the role, power,capacity and agendas of relevant individuals, groups and institutions, it has many benefits for thecompany. Clearly there is likely to be some overlap between this section of the analysis and theconflict issues section (where, for instance, military actors have interests in economic issues),but a purposeful focus on actors enables the company to:

• Inform and deepen the overall conflict analysis• Understand and manage its relations with key individuals and groups more effectively• Begin building relationships with a cross-section of society, itself a means of

avoiding conflict• Identify potential partners for conflict-risk mitigation strategies as well as possible spoilers.

As with the issues analysis, the focus is on the national rather than the project level. A keyobjective is to understand the perspectives of a wide spectrum of stakeholders in order to gaina better understanding of the context. This will also help the process of identifying those with whomrelations will need to be nurtured and those with the greatest interest in (or most likely to take aninterest in) the project.

It is important to understand intra-group dynamics. Splits, fault-lines and alliances within andbetween stakeholder groups, such as governing political parties, ethnic groups, rebel groups,security forces and others, have a very influential impact on the course of the conflict. The M-CRIAteam should not approach the stakeholder analysis solely as an information-gathering exerciseon behalf of the company. It is a two-way process designed to initiate a dialogue between thecompany and stakeholders, ideally at an early stage. In this sense, the information provided by thecompany in these consultations is as important as its own learning. Such a process, if undertakenseriously, helps forge relationships from the very beginning of the project’s lifecycle. This hasclear advantages in terms of creating trust, promoting transparency, laying the foundations forpartnerships, as well as establishing sources of information to support the ongoing conflict analysis.It is also important in understanding and managing expectations, particularly among civil societygroups and local entrepreneurs.

Box 5: Examples of relevant stakeholders

CSBP takes an inclusive and iterative approach to defining and mapping stakeholders. The keypriority at this initial stage is to identify representative and respected individuals with the knowledgeto inform the analysis (and capacity to absorb information about the project) and the influence tohelp convey information to their own constituencies. Thus, the potential impact of the project onthese individuals is not the prime criterion for their engagement.

1. Political/governance. Government representatives, officials, policy-makers, parliamentarians,opposition political parties, judiciary, armed groups.

2. Economics. Contractors, suppliers, business associations, chambers of commerce, SMEs.


3. Socio-cultural. NGOs (environmental, development/ humanitarian, human rights),women’s organisations, religious groups, refugee groups, traditional leaders, media, trade unions/workers’ associations.

4. Security. Representatives from the army, police, other law and order institutions, rebel groupmilitary wing.

5. Regional/international. Neighbouring governments, donor governments, international peacekeeping command, UN, EU, World Bank Group, international NGOs, multinational companies.

Broadly speaking, many stakeholder groups will view the development of the project (and byextension the company itself) either as a potential source of improved livelihood, or as a threat,given its relationship to a government that may be unpopular. The extent to which the companyaddresses these perceptions at an early stage carries implications for its reputation within thecountry and more widely. Allowing expectations to rise to unrealistic levels can have short-termattractions, but can be a source of resentment and grievance in the long term. Equally, a failureto engage with those sceptical of the project can foster greater opposition at later stages of theproject’s development (see box 6 and Flashpoint Issue 1: Stakeholder Engagement).

Box 6: Consulting with ‘controversial’ stakeholders

Given the inherently polarised nature of societies affected or threatened by conflict, it is inevitablethat companies find themselves under pressure from host governments not to consult or cooperatewith particular stakeholders. Examples might include armed groups, human rights NGOs, oppositionpolitical parties and newspapers or trade unions. The dilemma for companies is whether to riskthe anger of the government and engage, or whether to avoid these more controversial stakeholdersand risk generating resentment among significant (and often influential) sections of society.

Understandably, most choose the latter, seemingly safer option from the investment perspective.While there are real risks posed by engaging in particular with armed groups (see Flashpoint Issue7: Dealing with Armed Groups), not engaging with other stakeholders can however create problemsfor a company. Firstly, it limits the company’s understanding of the conflict context by blockingdialogue with affected groups. Secondly, non-engagement is likely to exacerbate perceptions thatthe company is not to be trusted.

In situations where direct consultation is politically impossible, other avenues need to be explored.Third parties (e.g. INGOs) can be employed as go-betweens; embassies have both the contactsand capacity to organise and convene sensitive meetings; and consultations can be arranged duringtrips abroad. Choosing not to engage for whatever reason means storing up problems for later.


In undertaking a stakeholder analysis, a number of key questions need to be consideredfor each stakeholder:

• Interests. What interests does each stakeholder group have with regard to the conflictand how do these interests manifest themselves in practice?

• Relations. What are the relations among and between them (consider factions within groups and the impact of this, power dynamics, conflicting interests, etc)?

• Capacities. What capacity does each group have to influence the conflict (positivelyor negatively)?

• Peace agendas. What visions of peace do the stakeholders have? What kind of peacedo they want? What are the main elements of their peace agendas (e.g. political/social reform, national autonomy, economic change)?

• Conclusions. What implications does this analysis have for the likely direction of the conflict/instability? What implications does it have for the company, both in terms ofmanaging potentially difficult relationships and developing strategic partnerships withkey groups.

The perceptions that stakeholders hold about the environments in which they operate are asimportant as the ‘reality’ of a situation. For example, different groups may cite ‘unfair tax burden’or ‘military threat’ as sources of grievance. Even when there is no independent evidence to indicatethese factors are present, they still play a role in conflict dynamics so long as important stakeholdersperceive them to be true. It is also unwise to assume that all acts committed by stakeholders withina conflict are either rationally directed towards a defined goal, or irrational acts of senselessviolence. Most people’s behaviour combines a complex mix of the rational and irrational.

Stakeholders identified through the Screening Tool will provide an initial indication of key stakeholdergroups requiring further exploration through the M-CRIA analysis. As with the issues, these partiesshould now be analysed in more depth. The key to a successful stakeholder analysis is to avoidgeneralities, focusing instead on the underlying subtleties and realities. Box 7 provides someinsights into the kind of questions the M-CRIA team should ask to develop the stakeholder analysiscomponent for each sphere.

Box 7: Sample questions to guide M-CRIA stakeholder analysis

For each section, list and analyse all the relevant actors, including their needs, goals, intents,preferences and inter-relations, and draw conclusions as to likely future scenarios. For theregional/international section, use the same political, economic, socio-cultural and securityheadings, but viewed from a regional/ international perspective. The questions shown below areindicative only and are not comprehensive or exhaustive. Sensitivity must be applied in thegathering of the information.

Political/governance. Which government departments, ministries or sections appear mostinfluential? Which among them exert the most influence, or appears most interested in affectingpositive change? Who advises the leader? What are their different goals? Is there an organisedopposition or rebel movement? What motivates them? Do formal or informal communicationchannels exist between the government and opposition or rebel movements? Is the oppositioncohesive or do factions exist? From where do opposition groups get their support?


Is there an active judiciary? Who are the most influential judges? What impact might power strugglesin the ruling party have for future policy or strategy decisions?

Economic. What are the largest companies in the country? Who owns or manages them? Whichelements of the business sector are prospering and which are struggling? Are there other influentialeconomic actors? Which actors are engaged in ‘illegal’ economic activity? What motivates them?Who has influence over government decision-making and how great is it? What elements of thebusiness sector would benefit from the resolution of conflict or tensions? Which elements wouldlose from such a resolution? Which politicians are involved in economic activity and what are theirbusiness ties? How do various segments of society maintain their economic livelihoods? What isthe role of unions?

Socio-cultural. What is the role of religious or ethnic leaders? What major environmental,development, humanitarian assistance and human rights NGOs are there? Who leads them? Othercommunity groups? Are their leaders influential with politicians? How representative, legitimateand independent is civil society considered to be? Are some civil society organisations seen to becorrupt? Does the government limit the ability of civil society organisations to operate? Whichmedia organisations or personalities are perceived as independent? What interests or influencedo refugees and internally displaced people have? What is the role of women in society? Are therekey fault-lines or splits within civil society? Does the political leadership’s characterisation of socialissues reflect the views of the general public?

Security. Does the national military operate under a unified command? How is its human rightsrecord? Are there reformists? Is there competition between leaders in the national military structure?What is the relationship between the military and the national police force? What agency isresponsible for domestic security? What agency is responsible for international security? Doorganised rebel groups exist? Do they operate in cells or under a clear command-and-controlstructure? Do former senior military or rebel officers have influence? How does the general publicview the different actors? If there is a change in political leadership, how is the military likely toreact? What obstacles need to be surmounted for the government and rebels to enter negotiations?Are there social activities that should begin now to ensure a lasting end to violent conflict?

Regional/international. Is the region governed by a regional political body and if so how does itoperate? Which influential foreign bilateral governments operate in the country and what are theirstakes? Which multilateral organisations are present? Do inconsistent or contradictory messagesfrom the international community allow the government to avoid some of its commitments?Does the region have a common economic body and how does it function? Do regional businessassociations or chambers of commerce exist? Which regional or international businesses arebased in, or have major operations in the country? Is there an economically powerful Diaspora?Are there religious or cultural leaders in the region with cross-border influence? What regionalcivil society organisations are present in the country? Which major international civil societyorganisations operate in the country? Do social tensions exist across international borders?Does cultural influence from foreign governments serve to divide the country from its neighbours?Are regional security organisations in operation? Are neighbouring countries at war, eitherdomestically or internationally? Do armed militias or other groups cross into the country (e.g.cattle rustlers, drug smugglers)?


3. Impact identification

The impact identification stage is designed to make an early assessment of potential companyproject impacts on the conflict context at the macro level, and vice versa, enabling the companyto:

• Understand how its investment is likely to influence the conflict dynamics• Understand how the conflict context might affect the company.

Figure 2: Two-way interaction between project and context

Given that M-CRIA is ideally undertaken at an early stage in the project cycle, there may be muchthat is unknown about the detail of project design. It is at any rate focused on understandingmacro-level impacts, although some project-level issues may be flagged for further inquiry duringP-CRIA. From the macro perspective, certain impacts can be predicted based on what has beenlearned through the analysis thus far, and experience from other companies investing in the countryor indeed elsewhere. Some common problems associated with extractive industry investment inconflict-risk states have been well documented: the M-CRIA impact identification offers a currentassessment of how these and other dynamics may, or may not, play out in the country in question:

• ‘Dutch Disease’. The impact on an economy of huge and sudden increases in revenue from extractive industry production, causing exports to become uncompetitive, and sectors like manufacturing and agriculture to decline.

• Corruption. Large revenues often encourage greater levels of rent-seeking and competition for control.

• Support to undemocratic regimes. Revenue from natural resources can act to protectgovernments from popular demands as other forms of tax collection become lessnecessary. Decision-making processes become removed from the needs and interestsof local groups, leading to neglect and the breakdown of a just and fair social contractbetween government and the governed.

Profile

Stakeholders Issues

Dyn

amic

s Dynamics

Dynamics

Project


• Security arrangements. Operating in unstable areas obliges companies to prioritise security arrangements that will protect their staff and installations, but experience showsthat these can often create tension and further militarisation around a project, involvingthe company in human rights complaints.

Civil society is increasingly highlighting these types of issues by acting as a ‘watchdog’ on corporateimpacts on host societies, including through trying to define and lobby on ‘no-go’ or ‘showstopper’standards. Prominent examples include the work of Global Witness, the Open Society Instituteand the Publish What You Pay campaign. Another example is the European Coalition on Oil inSudan – a network of NGOs seeking to support peace in Sudan that has developed ‘benchmarks’for oil exploitation in Sudan after the recent peace agreement (see box 8). The benchmarks try toarticulate the appropriate conditions for ensuring that the impact of investment on the conflict inSudan is benevolent and are included here as a useful guide to the issues in a specific conflictcontext and as indication of the increasing sophistication of civil society engagement.

Box 8: European Coalition on Oil in Sudan (ECOS): benchmarks for oil exploitationin Sudan during the interim period

The 15 benchmarks below have been developed by the ECOS, and are based on three sources:international law, the provisions and purpose of the peace agreement, and authoritative voluntarystandards for business behaviour. They are designed to provide companies with a frameworkwith which they can maximise both their own and society’s benefits from Sudan’s oil wealth.At the same time, they can serve as a measurement of oil companies’ commitment to peacefuland equitable development.

Oil companies have a chance to play a positive role in post-peace Sudan, provided the followingbenchmarks are met:

Circumstances and commitments1. A comprehensive peace agreement effectively ends all targeting of the civilian populationand installations in and around the company’s operating environment.

2. A formal and effective agreement is reached with all armed sides and factions in the company’soperating environment on how the civilian population and installations in the concession areaare to be secured.

3. There is unconditional, safe access and freedom of movement in the entire concession areaand the company spares no effort to maintain this situation.

4. Support, within the company’s ability, to the peace process and mitigation of any potential forconflict where possible. The company will monitor and document all breaches of the purpose andprovisions of the peace agreement that occur within its operating environment, report the findingsto the international agency that will monitor compliance with the peace agreement, and activelyengage with high-level government officials to end breaches; if this fails to resolve any issue, itwill inform international governmental and/or non-governmental human rights bodies.


Box 8 (continued)

5. A binding timeframe to shape the company’s security set-up along the lines of the VoluntaryPrinciples on Security and Human Rights, and the seeking of support from its home governmentin this endeavour.

6. Full disclosure of all the company’s provisions in cash or in-kind equipment or services formilitary, security, or dual use purposes.

7. No discrimination on the basis of religion, ethnicity, gender or political beliefs, and activepromotion of a workforce, at all levels, that reflects the make up of the local population in anequitable manner.

8. Establishment of mechanisms for dialogue and partnership-building with all stakeholders onall aspects of the operation that have an impact on the community, resulting in an economic, socialand peace action programme for the concession area that conforms with nationally agreedprinciples and policies, and supports the purpose and provisions of the Peace Agreement.

9. Use of all leverage and influence with the government and at other venues to encourage theadoption of a transparent and comprehensive revenue management regime; and alertness tothose circumstances in which revenue allocation is a potential conflict risk, while promoting thatagreed rules and transparent procedures for allocation are in place.

10. Insistence on full disclosure of all net payments, including taxes, royalties, fees and othertransactions with the government and/or public sector entities.

11. Insistence on full disclosure of all Product Sharing Agreements (PSAs) and other agreementswith state parties; renegotiations of existing PSAs to include social, environmental and humanrights standards; and insistence on these standards for newly negotiated PSAs and all otheragreements.

12. Support, in words and deeds, for the voluntary return of all refugees and IDPs who so wish,to their places of origin in and around the concession area, in consultation with international andcivil society organisations.

13. Companies that have stakes in concession areas that have seen violent displacement post-1997 publicly commit themselves to initiate or support the implementation of a comprehensiveand sufficiently funded plan for compensating victims of violent displacement in their concessionarea, in agreement with local leaders and civil society.

Assessments and reporting14. Prior to any investment decision and at regular intervals, the company will assess its impacton and contribution to the communities that surround its operations and the wider society, withregards to development, peace, security, human rights – including social, economic and culturalrights – and the environment, taking into account its impact on the physical and economicsecurity of the population, on local and national strife and rivalries, and on the realisation of theprovisions and purpose of the peace agreement. The assessment will draw upon external experts


and local communities, and involve government and civil society organisations. It will containrecommendations for action, consultation, and dispute settlement. The company commits itselfto share the assessment with its stakeholders, to implement its recommendations, and to evaluateand update it on a regular basis.

15. The company will publicly report on a yearly basis its own and/or its consortium’s impact on,and contribution to, development, peace, security, human rights and the environment, coveringall the above mentioned benchmarks, including its success in implementing the Voluntary Principles,an evaluation of the economic, social and peace action programme, and the status of therecommendations of the impact assessment.

To obtain the M-CRIA impact identification, the findings of the research into profile, issues andstakeholders should first be written up in a draft conflict analysis report. The draft report will serveas the basis for internal discussion with company staff (Step 4). It is important that a cross-sectionof company staff engages in this process since a wide range of business activities is likely to haveimpacts on the context. Geologists, political risk and security managers, staff from external relations,procurement and human resources departments, and management should all be represented inthe discussions, which should be interactive and facilitated. Cross-departmental consultation ofthis type can help lay the foundations for mainstreaming a CSBP approach within the company.

While the focus of the profile, issues and stakeholder analyses has been to look for positive dynamicsas well as problems, the focus in the impact identification should be to understand the negativeimpacts that the company could have on conflict, and vice versa. As indicated in the CSBPIntroduction, the range of direct and indirect company/conflict impacts is large. Consultationswith staff should focus on developing a consensus on the priority issues that emerge from thelonger issues analysis report and background material, as well as the priority direct impacts.This information will be critical to helping the project team define some of the parameters so thatthe company is able to minimise its negative impacts and promote positive ones. Understandingthe impact of investment on existing or potential conflict is the crux of conflict sensitive businesspractice.

Findings from the impact identification should be added into the report and at this point it maybe useful to synthesise the findings into a table format, as shown in table 1 which gives indicativesamples based on a fictional country context under the different social sphere categories.


SPHERES

POLITICAL/GOVERNANCE

ECONOMICS

SOCIO-CULTURAL

SUB-CATEGORIES

Geographic distributionof power

Political participation

Corruption

Human rights

Natural resources

Unemployment

Ethnicity

Table 1: Summary of M-CRIA analysis

CONFLICT ISSUE

Competition between provinces and capital for politicalpower. History of injustice in access to resources andopportunities.

Political participation aggressively mobilised alongethnic and sub-ethnic ‘clan lines’.

Government corruption hinders development andcreates grievance in society.

Abuses perpetrated by all sides – more pronounced inrecent years.

Natural resource exploitation shows signs of leadingto ‘Dutch Disease’, as rest of economy suffers.

Inequitable distribution of benefits a source of grievance.

Large number of unemployed urban and rural youth.

Intra-ethnic tension.


TRIGGERS/ESCALATING FACTORS

Provincial tax collection.

Elections.

Pending elections increasesinternal competition withingovernment for positions ofpower.

High-profile detentions.

Collapse of survivingmanufacturing.

Any challenge to status quomet with repressive response.

Further rise inunemployment.

Elections.

COMPANY IMPACTON CONFLICT

Investment could exacerbateproblem through reinforcingregime.

Recruitment and otherbenefits could favour elitegroup, contributing to furthertension.

Inflows of revenueexacerbates corruptpractices.

Investment reinforcesgovernment control.

Use of state security forcesdespite their history ofabuses.

Investment furtherstrengthens oil sector andreinforces governmentcontrol despite inequitablepolicies.

Stronger oil sector furtherdamages other sectors.

Recruitment and otherbenefits could favour elitegroup, contributing to furthertension.

CONFLICT IMPACT ONCOMPANY

Identification of company withgovernment a potentialthreat. Location of operationin provinces a particular issuefor concern to be exploredfurther in P-CRIA.

Volatility in political systemcould threaten investment.

Increased transaction costsand reputational threat.

Legal risks posed byoperating in joint venturewith state oil company.

Security arrangements runrisk of contributing toescalation of violence.Security arrangements aparticular issue of concern tobe explored further in P-CRIA.

Identification of company withgovernment a potential threat– above all given nature ofbusiness.

Weak economy imposeshigher transaction costs.

Ability to absorb only aminority of local unemployedpeople will be a source ofgrievance. A particular issueof concern to be exploredfurther in P-CRIA.

Excluded group targetscompany with attacks.

RISKLEVEL

Red

Red

Red

Red

Red

Red

Amber


SPHERES

SECURITY

REGIONAL/INTERNATIONAL

SUB-CATEGORIES

Insecurity level

Weaponry

Urban crime

Governance

Economic

Socio-cultural

Table 1 (continued)

CONFLICT ISSUE

Varying levels of personal and community security indifferent provinces a source of grievance.

Increased small arms availability and use.

On the increase, and organised along ethnic lines.

Corrupt and ineffective regional body fuels mutualsuspicion across borders.

Some neighbouring local elites benefit significantly fromillicit trade in natural resources.

International religious links with domesticconstituencies aligning government with ‘war on terror’.


TRIGGERS/ESCALATING FACTORS

Police force aggression.

Inflow from border region.

Elections.

Peace talks concerningneighbouring country.

Attempts to regulate cross-border trade.

New restrictions on freedom ofworship and other civil rights.

COMPANY IMPACTON CONFLICT

Use of state securityapparatus contributes tofurther tensions betweencivilians and army/police.

n/a

Recruitment and otherbenefits could favour elitegroup, contributing to furtherexpression of ethnicallybased urban crime.

Investment fuels jealousyand competition amongneighbouring countries.

Investment threatens thistrade, pushing stakesto control it higher in theshort term.

Investment reinforcesgovernment control despiteinequitable policies.

CONFLICT IMPACT ONCOMPANY

Violence poses threats tocompany infrastructure.Security arrangements aparticular issue of concern tobe explored further in P-CRIA.

Greater levels of violent crimepose risks to staff.

Insecure living quarters andoffices in capital.

Regional insecurity increasesconflict risk for company.

Likely increased securitycosts and possible threatto price margin implied.Illegal commodity tradeparticular issue of concernto be explored further inP-CRIA.

International attentionraises reputational stakes forcompany.

RISKLEVEL

Red

Amber

Amber

Amber

Amber

Amber

4. Mitigation strategyThe final stage of M-CRIA is the design of an initial mitigation strategy and plan for engagingstakeholders. The M-CRIA team should develop ideas for addressing some of the issues andrelationships identified thus far by brainstorming proposed actions. It will then be in a positionto develop a strategy to identify the steps that can be taken at the macro level even at this earlystage, in anticipation of likely future impacts. The strategy will probably be a combinationof externally oriented activities (e.g. measures to promote economic diversification; supportto local and international NGOs; implementation of transparency frameworks); and internallyoriented activities (e.g. information management, overview of relationships to be developed, etc).

The design of some aspects of the mitigation strategy may require the gathering of furtherinformation on the particular issues and stakeholders identified by M-CRIA. For example, if thepotential for militarised ethnicity has been identified as a potential conflict issue, and the assessmentindicates that addressing this may be worthwhile, further research into relevant organisationsand key players may be necessary. ‘Further research’ is therefore a legitimate proposed mitigationaction, as a step towards more concrete proposals that will emerge through subsequent stages.

Figure 3: Conflict-risk mitigation strategy

Companies tend to be reluctant to ‘front-load’ social investment and other non-businesscontributions, with financial and human resources often made available only as the projectdevelopment proceeds. CSBP requires companies to design and implement conflict-riskmitigation strategies much earlier however, although these initially may be quite ‘light’.There are four advantages to this:

• Planning ahead in this way will enable companies to identify better local partners• Many of the initiatives identified will be long-term in that they seek to transform

structural conflict issues, such as underdevelopment or unemployment. Startingto alleviate these conditions as early as possible is more likely to have benefitsfor the company


Profile

Stakeholders Issues

Dyn

amic

s Dynamics

Dynamics

Project

Partners Activities


• There are reputational gains at the local and international levels from implementing strategiesearly, and pre-empting negative impacts

• It helps to manage expectations if companies communicate with stakeholders abouttheir plans as early as possible.

4.1 Core business, social investment and policy dialogueCompanies interact with host societies through three basic categories of business activity: corebusiness, social investment and policy dialogue, and it is useful to understand mitigation measuresas expressing themselves accordingly. Clearly a comprehensive strategy covering all areas ofbusiness will only emerge over time, but ultimately companies should be aiming to maximise theirpositive impact in each area. Core business relates to activities in the immediate sphere of acompany’s operations (location of investment, employment of staff, security arrangements,production activities); social investment captures the wider projects and stakeholder relationshipsthat companies invariably engage in as one means of managing their operating environment; andpolicy dialogue refers to the engagement that companies are likely to have with national and localgovernments, industry associations, international agencies and other companies in their sector.Through each of these areas, companies can seek to address company/conflict impact issueswhere they have a direct responsibility and interest, such as the priority issues identified inStep 4; and wider conflict issues that may have come up in the analysis. Through early andcareful strategising, they can have both a ‘do-no-harm’ and a peacebuilding impact by addressingsuch dynamics. M-CRIA is a macro-level tool and so identifies mitigation steps that play out atthe national level or that address macro issues at the project level. P-CRIA enables companiesto develop similar strategies for the local level.

Figure 4: The ‘peacebuilding palette’4

4. Source: Smith, D. et. al. (2004) Towards a Strategic Framework for Peacebuilding: Getting their Act Together (Oslo: Norwegian Ministry of Foreign Affairs).




Peacebuilding





justice system)


Peacebuilding, as illustrated in figure 4 above, requires a spectrum of conditions and activitiesacross the different social spheres. Clearly, no company is single-handedly going to solve ortransform this typical breadth of conflict issues or dynamics. Figure 5 provides a useful way ofconceptualising the kind of positive influence companies can have on certain issues when informedby the right analysis. Partnership with other actors is an essential feature of any conflict-riskmitigation strategy, as presented in box 9.

Box 9: Partners for conflict-risk mitigation and peacebuilding

Government. States (and/or state-owned enterprises) are the primary partners in most extractiveindustry projects. Entering into agreements with governments means that a company’s reputationis inextricably bound up with the actions of its partner. In other words, abuse, corruption andrepression on the part of the government will rebound on the company by virtue of its partnership.This emphasises the importance of writing key agreements into contracts (e.g. transparency inrevenue payments, Voluntary Principles on Human Rights and Security, percentage of revenueaccruing to project region). In itself this will go some way towards avoiding some of the mainsources of grievance and conflict precipitated by extractive industry investments. Beyond contracts,companies should lobby and dialogue with governments to use revenues equitably, workingwith them to promote an enabling environment for business and exerting pressure to reducecorruption and hold to account those responsible for human rights abuses. In terms of state-owned enterprises, capacity-building should go beyond technical and financial expertise, andinclude the incorporation and mainstreaming of sound ethical principles. Companies should alsowork to build the capacity of local government to deliver essential services to communities, throughdesigning social investment projects that complement and strengthen government, rather thaneclipse it as often happens (see Flashpoint Issue 5: Social Investment).

Companies. Collective action by multinational companies is critical to exerting a positive influence.Acting alone is both risky and less likely to prove successful. However, while companies often needto work together to develop natural resources, they are more reluctant to collaborate on developmentprojects or lobbying government (except where they feel their common interests are directlythreatened – e.g. tax issues). This is partly because the extractive industry is far from homogenousin its approaches, but largely it is down to individual companies’ effort to create brand identity.This use of ethical and social policies as part of a marketing strategy has little or no relevance incountries threatened by conflict. Worse, it actively obstructs important initiatives from beingpursued and leads to duplication and reduced impact. Harnessing the collective influence, financialresources and expertise of companies could make a significant contribution towards promotingequitable political and socio-economic development.

International community. These are useful partners for companies in that they bring differentskills and competencies to addressing shared issues of concern. Companies can pool their skillsand activities with donor governments on addressing human rights and corruption; with developmentagencies and INGOs on service provision and capacity building projects; and with IFIs on promotinggood practice in transparency and revenue management.


Local NGOs. Credible NGOs working on issues relevant to the M-CRIA analysis will have emergedthrough the stakeholder analysis. Partnering with local NGOs will enable companies to developrelevant and targeted projects, and will have the added benefit of supporting the capacity of localcivil society, itself an important intervention.

National business. Strengthening national business capacity and productivity through skills transferand partnership can strengthen initiatives to promote peace and help to address risks of ‘DutchDisease’. Companies will also have a shared interest in lobbying for stable and enabling operatingenvironments with their national counterparts.

Figure 5: Spectrum of influence

The ‘control’ part of the axis indicates those issues closest to a company’s core sphere of activity;‘assist and influence’ shows where companies, in collaboration with other companies or NGOs,can hope to have some positive impact in the long term.

Table 2 gives some examples of elements of a conflict-risk mitigation strategy according to thisframework, based on a fictional country context. Strategy development is enhanced by referringback to the stakeholder analysis to identify potential ‘partners’, or ‘spoilers’, of proposed actions.

Core business Social investment Policy dialogue

Influence

Assist

ControlDevelopinghuman resources

Creatingjobs

Generatinginvestment

Buildinginfrastructure

Supportinganti-corruptioninitiatives amongstsuppliers/contractors

Education,health programmes

Capacity buildingfor civil society

Votereducation

Promotingrevenuetransparency

Lobbying governmenton corruption/humanrights etc

Support for improvingjudiciary/police

Support forinstitutional reform


Table 2: Conflict-risk mitigation strategy – example

POLITICAL/GOVERNANCEGovernmentcorruption

ECONOMY‘Dutch Disease’

SOCIO-CULTURALInter-ethnictension

SECURITYInsecuritylevel

REGIONALRegionalgovernmentbody

COREBUSINESS

Promote own businessprinciples internallyand to contractors/suppliers, includingstate partners.

Ensure a maximumof ‘local content’ inhiring contractorsacross all areas ofrequirement, includingcatering, construction,etc.

Begin researchingoptions for promotinginter-ethnic toleranceand diversity in thework place.

Begin researchingsecurity arrangementsthat will not fuelinsecurity levels ateither local or nationallevels, includingthrough adhering tointernational law andstandards.

Dialogue with otherbranches of companyactive in the region todevelop sharedstrategy ofengagement.

SOCIALINVESTMENT

Support local andinternational NGOsworking on anti-corruption initiatives.

Prioritise economicdiversificationschemes in socialinvestment, forinstance vocationaltraining courses,business skillstransfer, capacitybuilding of chambersof commerce,including inpartnership withdevelopment agenciesand government.

Seek out NGO and IGOpartners working ontolerance andreconciliation at thenational level.

Develop plans fortraining modules inhuman rights for localpolice and statesecurity forces, inpartnership withcredible (I)NGOs.

Support initiatives tobuild capacity of theregional body.

POLICYDIALOGUE

Lay groundworkfor cross-industry‘club’ to strengthenlobbying ofgovernment forpolitical reforms;support the ExtractiveIndustry TransparencyInitiative atinternational andnational levels.

Negotiate withgovernment toencouragediversificationschemes, an enablingenvironment forbusiness andensure revenuewill be distributedfairly, as part ofcontract and otheragreements.

Engage with othercompanies onreplicating these goodpractices across theindustry.

Engage withgovernment on reformof the state securityapparatus.

Engage with othercompanies on workingtogether to strengthenthe regional body inthe interests of long-term peace andsecurity in the region.

PARTNERS/SPOILERS


5. Step 7 – transparency and implementationHaving progressed the M-CRIA tool this far, a good exercise in relationship building and transparencyis to reconvene a group of the individuals consulted as part of Step 2 in order to share the findingsof the overall analysis, and the initial conflict-risk mitigation strategy matrix. This provides anopportunity to gather further insights into how to progress some of the steps proposed. It alsomakes sense at this point to reconvene the inter-departmental group that assisted with the impactidentification in order to create buy-in for the proposed macro-level mitigation strategy, and assignresponsibility for implementing the proposed actions. Too many social impact and other companyassessments are shelved after completion: M-CRIA is designed to stay ‘live’. By ensuring theassessment attains this degree of institutional take-up, the company is taking a step in the directionof managing conflict risk effectively and promoting peacebuilding through its operations as theyget underway. Sustaining it by regularly updating and monitoring progress is a key part of fulfillingits objective.

Box 10: Institutional learning and knowledge management

Companies undertake multiple types of assessments throughout a project’s lifecycle. Inevitably,many different individuals and teams from separate departments conduct them over an extendedspan of time. This makes it difficult to develop a consistent, comprehensive and regularly updatedcompany-wide analysis of the context, both at national and project levels. The result can beduplication of research, confused relationships with stakeholders, poor coordination betweendepartments, inconsistent analysis and, ultimately, an incoherent strategy. Effective CSBP requiresthe establishment of systems and processes within the company that ensure consistency inundertaking and updating analysis and coordination across departments in developing and actingon it. Appropriate knowledge management in this regard needs to be valued and rewarded.

Resources

Risk assessment and managementBowden, A.R. and J.H. Martin, J.Mitchell (2000) ‘StrategicBusiness Risk Assessment – An Approach for FinancialCharacterisation of Social and Environmental Risks’ inAppea Journal (Canberra: Appea).

Bowden, A.R. et al (2001) Triple Bottom Line Risk Management:Enhancing Profit, Environmental Performance and CommunityBenefits (Hoboken: Wiley).

Control Risks Group Risk Assessment Methodology (TRAM).www.crg.com/html/service_level3.php?id=362

Goldwyn, R. and J. Switzer (2004) ‘Assessments, Communitiesand Peace – A Critique of Extractive Sector Assessment Toolsfrom a Conflict Sensitive Perspective’, in Oil, Gas and EnergyLaw Intelligence (OGEL), vol.2 issue 4. www.gasandoil.com/ogel/

Ward, S. and C. Chapman (2002) ‘Transforming Project RiskManagement into Project Uncertainty Management’, inInternational Journal of Project Management, no.21.

Conflict analysis frameworks used by developmentand humanitarian agenciesBush, K. (2003) Hands-On Peace and Conflict Impact AssessmentHandbook Vol I and Vol IIwww.swisspeace.org/koff/t_tools_pcia.htm

Canadian International Development Agency (CIDA) ConflictDiagnostic Handbook. www.acdi-cida.gc.ca/peace

Clingendael Institute Conflict and Policy Assessment Framework.www.clingendael.nl/cru/

European Union Checklist for Root Causes of Conflict.www.europa.eu.int/comm/external_relations/cpcm/cp/list.htm

Forum on Early Warning and Early Response, West AfricaNetwork for Peacebuilding, Centre for Conflict Research Conflict Analysis and Response Definition.www.reliefweb.int/rw/lib.nsf/db900SID/LGEL-5DVE4E/$FILE/fewer-meth-apr01.pdf?openelement

Fund for Peace Conflict Assessment System Tool.www.fundforpeace.org/programmes/cpr/cpr.php

GTZ Conflict Analysis for Project Planning and Implementation.www.gtz.de/crisisprevention/download/conflictanalysis.pdf

International Alert, Africa Peace Forum, Cecore,CHA, Fewer, Saferworld (2002) Conflict-Sensitive Approachesto Development, Humanitarian Assistance and Peacebuilding:A Resource Pack www.international-alert.org/publications.htm

Paffenholz, T. and L. Reychler (2005) Aid For Peace:A Guide To Planning And Assessment For Conflict Zones,(Boulder: Lynne Rienner Publisher).www.swisspeace.org/koff/uploads/website/WorkingInConflictZones.pdf

Responding to Conflict Working with Conflict: Skills andStrategies for Action. www.respond.org/learning_resources.asp

Swisspeace FAST Early Warning System.www.swisspeace.org/fast/

UK Department for International Development (DFID)Strategic Conflict Assessment. www.dfid.gov.uk/pubs/files/conflictassessmentguidance.pdf

UN System Staff College Early Warningand Preventive Measures. www.unssc.org

USAID Conflict Assessment Framework. www.usaid.gov

World Bank Conflict Analysis Frameworkwww.inweb18.worldbank.org/ESSD/sdvext.nsf/67bydocname/conflictpreventionandreconstruction

World Vision Making Sense of Turbulent Contexts: Analysis Toolsfor Humanitarian Actors. www.wvi.org

Examples of completed conflict analyses5

Goodhand, J. (2001) Conflict Assessments: A Synthesis Report:Kyrgyzstan, Moldova, Nepal And Sri Lanka(London: DFID). www.dfid.gov.uk/pubs/files/conflictassessmentsynthesis.pdf

Institute for Peace and Conflict Resolution (2003) StrategicConflict Assessment: Consolidated Zonal Reports Nigeria,(Abuja: Federal Government of Nigeria, the Presidency).www.igbostudies.com/Nigeria%20conflict%20assessment%20may%202003.pdf

Mercy Corps (2003) Western Nepal Conflict Assessment.www.mercycorps.org/pdfs/nepal_report.pdf

World Bank (2005) Conflict in Somalia: Drivers and Dynamicslnweb18.worldbank.org/ESSD/sdvext.nsf/67ByDocName/ConflictPreventionandReconstruction

Training courses and materials on conflict analysisand conflict transformationAfrican Centre for the Constructive Resolution of Disputes(ACCORD) Introduction to Conflict Management, MediationTraining 3-day courses, based in South Africa.www.accord.org.za/web/home.htm

Centre for Peacebuilding and Conflict Management Basic ConflictManagement Skills 3-5 day courses. www.ccm.no/

Creative Associates International A Toolbox to Respond toConflicts and Build Peace. www.caii.com/

Eastern Mennonite University Summer Peacebuilding Institute4-week training. www.emu.edu/ctp/spi.html

International Alert Resource Pack for Conflict Transformation.www.international-alert.org/publications.htm

Network University Transforming Civil Conflict 4-week onlinecertificate course. www.netuni.nl

Responding to Conflict Strengthening Policy and Practice 1-week training course. www.respond.org/

Transcend Peacebuilding, Conflict Transformation and Post-War Rebuilding, Reconciliation and Resolution 5-day trainingcourse. www.transcend.org/

5. These are listed as illustrations of conflict analysis. International Alert does not endorse their interpretation of anyparticular conflict.


UN Developing Capacity for Conflict Analysis and EarlyResponse: a Training Manual. unpan1.un.org/intradoc/groups/public/documents/un/unpan011117.pdf

University of Waterloo Certificate Programme in ConflictManagement. www.grebel.uwaterloo.ca/

International sources of information and data6

Economist Intelligence country reports. www.economist.com

Freedom House Annual Freedom Report.www.freedomhouse.org/ratings/

Heidelberg institute on International Conflict ResearchAnnual Conflict Barometers. www.hiik.de/en/index_e.htm

Human Security Network Human Security Report 2005.www.humansecurityreport.info/

International Crisis Group Country and Regional Reports.www.crisisgroup.org/home/index.cfm

International Institute for Strategic Studies (IISS)Armed Conflict Database.www.iiss.org/showpage.php?pageID=25

IISS The Military Balance.www.iiss.org/conferencepage.php?confID=61

IISS The Strategic Survey.www.iiss.org/showpage.php?pageID=24

Small Arms Survey Annual Surveys and Online Databases.www.smallarmssurvey.org/

Stockholm International Peace Research Institute Yearbooks:Armament, Disarmament and International Security, 1993 topresent. www.sipri.org/contents/webmaster/publications

Swisspeace ‘FAST’ Early Warning Reports.www.swisspeace.org/fast/default.htm

University of Maryland, Centre for International Developmentand Conflict Management Conflict Research Datasets.www.cidcm.umd.edu/

Human rights situationAmnesty International annual reports and country reports.www.amnesty.org/

Business and Human Rights Resource Centre.www.business-humanrights.org/Home

Human Rights Watch annual reports and country reports.www.hrw.org/

UK Foreign and Commonwealth Office annual human rightsreports. www.fco.gov.uk

US Department of State Human Rights annual reports andcountry reports. www.state.gov/g/drl/rls/hrrpt/

Economic and social situationWorld Bank World Development Report (global, regional andcountry versions) www.worldbank.org

Transparency International country-specific information oncorruption. www.transparency.org

UNDP Human Development Report (global, regional and countryversions). www.undp.org

Local sourcesNewspapersCivil society reports and studiesAcademic papersLocal think-tank and research institute papersInterviews


6. No source of information is entirely impartial. M-CRIA teams should ensure that a good mix of international and national sources are used.

Section 3

Project-level Conflict Riskand Impact Assessment tool(P-CRIA)

Project-level Conflict Risk and Impact Assessment tool(P-CRIA)

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesProject-level Conflict Risk and Impact Assessment tool

PurposeM-CRIA notes that traditional political and financial risk assessment and management processesare inadequate in analysing and assessing the full range of issues that might cause, trigger orexacerbate violent conflict. A similar critique can be made of environmental and social impactassessments (ESIAs). These limitations are particularly problematic at the project level where arestricted understanding of the context - and the full range of the company’s impacts on the context- could lead to difficult relationships, and even conflict.

P-CRIA is designed to address these gaps. It fulfils the same function at a local level that M-CRIAdoes at a national level, though its specificity adds new dimensions and emphases to its method.Inasmuch as it provides a way of understanding and managing company/context interactions atthe local level, it can be seen as a mechanism for generating a ‘social licence to operate’. P-CRIAhelps a company promote transparent and trusting relationships with relevant communities andstakeholders as a means of minimising tensions, avoiding conflict and encouraging (within thelimits of a company’s capacity and legitimate competence) peace through equitable social, economicand political development.

It does this by:

• Providing a comprehensive analysis of the context around project sites, including any existingor potential conflict

• Predicting, monitoring and mitigating the two-way project/context impacts• Generating appropriate management and mitigation strategies that respond to the needs and

priorities of local communities, as well as the company itself• Identifying stakeholders and informing engagement strategies• Developing buy-in to, and ownership of, the project among stakeholder groups.

MethodP-CRIA uses a combination of desk research, targeted individual consultations, community-wideand group-specific consultations, problem-solving workshops, collaborative activities and internalcompany brainstorming. Although it generates a lot of information, P-CRIA is not a prolongeddata-gathering exercise, but a mechanism for ensuring company and communities work togethertowards understanding company/context interaction, and the development and realisation ofmutual objectives in terms of project design, operation and closure. As such, the process used forimplementation is as significant as its outputs.

Project investment stageFor greenfield sites, P-CRIA commences during initial exploration or pre-feasibility and continuesthroughout the project lifecycle. Initial engagement is directed at understanding the context inorder to enable improved assessment of the two-way impacts and, ultimately, identification ofmanagement, mitigation and monitoring strategies. The process is gradual and iterative, deepeningand evolving in tandem with advancements in project development.

For existing sites at a more advanced stage of development, a preliminary review should be carriedout to assess the level of the company’s understanding of existing or potential conflict risks, thestate of relationships with stakeholders and the effectiveness of social investment projects. Thefindings of the preliminary review should point the P-CRIA team in the direction of problems thatneed priority attention before implementing the P-CRIA tool in full.


CSBP synergiesP-CRIA follows on from, and builds on, the Screening Tool and M-CRIA. Given the nature of extractiveindustry projects, however, the tools do not necessarily work as a simple chronological sequence.Exploration activities are more than likely to be underway before final investment decisions havebeen taken, with the inevitable consequence that company/community interactions and expectationsat the local level will occur even as the company is still coming to grips with the national situation.These interactions will, according to CSBP principles, require careful management if they are notinadvertently to cause or exacerbate tensions. P-CRIA, therefore, ideally commences soon afterM-CRIA (see Operational Guidance Charts).

Non-CSBP synergiesTo some extent, P-CRIA complements existing company ESIA processes. However, it is morecomprehensive and integral to business management than these assessments, and should beseen as a longer and broader process running throughout the project cycle.

TimeframeThe initial core assessment process of P-CRIA takes between 12-24 months, depending on aproject’s scale and complexity. However, it is designed to guide business management throughoutthe project cycle and in this sense has an open-ended timeframe.

ResourcesAs with M-CRIA, the critical first resource requirement for conducting P-CRIA is a small team withthe right mix of skills (including conflict analysis expertise, knowledge of and sensitivity to the localcontext and history, fluency in local languages, facilitation and interviewing skills), and includingrepresentatives from across the company’s range of operations. Ideally, some of the individualsinvolved in M-CRIA will form part of the P-CRIA team. As the process develops, the analysis andcontacts built up during the initial phases of P-CRIA need to be transferred gradually as differentcompany departments (e.g. geologists, political risk and security managers, staff from externalrelations, procurement and human resources departments, and management) become increasinglyinvolved. High and poorly planned staff turnover, and limited mainstreaming and inter-departmentalcoherence represent the biggest threats to effective implementation of CSBP as a whole.

The other critical resource factor is time, which can have significant financial implications.But experience shows that short-cuts in the crucial process of context analysis and relationshipbuilding at early stages can result in higher financial, security and reputation costs later on.

Outputs1. Comprehensive and regularly updated analysis of the project context, including existing or

potential conflict issues, and stakeholders2. Regularly monitored and reviewed understanding of two-way project/conflict impacts3. Evolving management and mitigation strategies that address key conflict issues and real needs4. Transparent and mutually trusting relationships with stakeholder groups5. Support for the project amongst stakeholder groups.


1. IntroductionExperience indicates that existing ESIAs have not been effective in anticipating and mitigatingnegative company/context impacts, and hence have not succeeded in ensuring that the fullrange of potential benefits derived from large extractive projects accrue to affected communities.1

This is particularly true in areas characterised by latent or open social tensions or conflict, reflectingboth the difficult operating environments themselves, but also limitations in the design and practiceof ESIAs. These can be summarised as follows:

Purpose. ESIAs are flawed from the outset in that they are driven primarily by legal and financialrequirements rather than their own intrinsic added value. While some genuine issues of concernmay well be captured through an ESIA, its essential purpose is for the company and/or its financialbacker to acquire data, rather than for the company to begin generating a social licence to operate.This misses opportunities inherent in the assessment process to begin building strong relationshipsand ensure positive outcomes.

Timing. Full ESIAs are triggered by investment decisions often taken years after a company hasbegun initial exploration and long after company/community interactions have begun. They aretime-bound in nature, and rarely monitored and updated over the project cycle. This means theyare at best ‘snapshots’ of a given context, rather than the live analysis tool required in volatileoperating environments.

Analysis. As with political risk assessments, ESIAs are inadequate for analysing and assessingthe full range of issues that might cause, trigger or exacerbate tensions or violent conflict.

Process. The limitations in analysis are partly a result of the process used. ESIAs are managedand financed by the company to tight deadlines. Thus, process is often sacrificed to efficiency andany consultation that does occur is likely to be one-way and extractive. This limits the quality ofthe analysis as it precludes genuine understanding of stakeholder perspectives.

Decision-making. Even where the findings of ESIAs are shared with communities and otherstakeholders, this is often in an ‘off-the-shelf’ and technical format that may not be fully accessibleto all. Communication of findings often takes place after key decisions have been made, indicatingthat control over those decisions remains firmly with the company. This can confirm perceptionsof the company as an outsider with little interest in the voices of affected communities, a perspectivethat is likely to have negative repercussions over time.

2. ApproachP-CRIA complements current ESIA practice by addressing these gaps in content and process.In addition, it extends through its analysis and relationship-building process into the designof ongoing management and mitigation strategies that accompany the lifecycle of the project.It is therefore useful to understand it as circular (see figure 1 below) and constituting an ongoingmechanism for conflict-sensitive management of a business.

1. Goldwyn, R. and J. Switzer (2004) ‘Assessments, Communities and Peace: A Critique of Extractive Sector Assessment Tools from a Conflict-Sensitive Perspective’, in Oil, Gas and Energy Law Intelligence (OGEL), vol.2 issue 4.www.gasandoil.com/ogel/


The methodology is guided by four key principles:

Participatory analysis. A richer analysis of context, including any existing or potential conflict,and a better understanding of potential project/conflict interactions can be achieved by drawingmore creatively on the perspectives of those living in affected areas. Participatory analysis is akey ingredient of the overall assessment process.

Good communication. Avoidance of challenging issues allows them to ferment and come upin aggravated scenarios at later stages. Open channels of communication and dialogue whererelationships break down can help tackle contentious issues constructively. Improved communicationprocesses are a key component of CSBP as a whole.

Strong local relationships. Stakeholders have a legitimate interest in significant changesthat a major investment will make to their livelihoods and landscape. Open and transparentdiscussion and revision of a project in light of stakeholder concerns accords value to others’perspectives. An inclusive approach can make change more palatable to stakeholders andalso builds local capacity.

Shared decision-making. The decision-making process in business activities becomes more openin P-CRIA. Shared decision-making invites transparency and trust, fosters legitimacy and relievestensions. This has significant bottom-line benefits for companies, but may require more flexibleapproaches to timeframes.

Bearing its circular approach and underlying principles in mind, the process of undertaking theP-CRIA tool can be synthesised into four basic steps:

Step 1Start with a project-level context and stakeholder analysis that aims to identify important issuesat the local level, and those stakeholders likely to be impacted by the project (insofar as this ispossible at this stage). As with M-CRIA, use a combination of desk research, targeted consultationsand internal company brainstorming. The resulting information should be written up into a20-30 page report.

Step 2Engage stakeholder groups identified in Step 1 in a participatory research process that enablesa deeper analysis and clarifies the likely impacts of the project. This process also helps identifyother impacted stakeholders who need to be engaged and lays the foundations for a sense ofshared ownership over project development.

Step 3Drawing on the findings of Steps 1 and 2, begin to design management and mitigation measureswith three targets in mind: (i) responding to the needs of the local population; (ii) ensuring negativeimpacts are minimised; and (iii) addressing some of the conflict or potential conflict issues highlightedduring the analysis. Continue to use participatory processes: the more stakeholder groups areinvolved in identifying responses, the more effective those responses are likely to prove.


Step 4Continue to update and expand the context analysis, impact identification and mitigation designas the project develops, ensuring that significant findings on impact are absorbed into projectre-designs where necessary. Identification of the nature and scope of project/context impacts(and therefore impacted stakeholders) needs to accompany progress in identifying precise projectparameters, including infrastructure, construction, personnel and transportation needs which,in turn, should accommodate the analysis. This can be a process which evolves over years,and which will require institutional mainstreaming across business areas.

Figure 1: The P-CRIA methodology

Step 2Participatory process withimpacted stakeholdersleading to...

Step 3Initial participatorymanagement andmitigation strategyleading to...

Step 4Updated and expandedanalysis, informing projectre-design if needed,deepening...

Step 1Project-level expert-ledanalysis and impactidentification leading to...

Projectdevelopment


3. Step 1: Project-level context and stakeholder analysisThe project-level analysis is constructed along the same lines as M-CRIA, but with a focus onthe local level. It is a systematic study of the context that explores the background profile, issuesand stakeholders, and makes a preliminary assessment of likely project impacts. Fundamentalto any analysis of this type is an understanding of the dynamics within and between the differentcomponents. This is particularly critical at the project level where relations between differentgroups or between communities and local government can be transformed, for better or worse,simply by the presence of a multinational company.

Failure to take the time to understand the pre-existing context has caused companies significantproblems in the past. Without understanding the context fully, it is impossible to gain a properappreciation of the potential project impacts. To keep ahead of developments, P-CRIAneeds to begin as soon as possible after the company begins its exploration process.

Box 1: ‘No conflict here’

Relatively few major greenfield projects are developed in areas of actual violent conflict, preciselybecause of the risks entailed. More commonly, violence at the local level will follow the start ofoperations.

Major investments inevitably alter traditional systems and, even in relatively peaceful environments,can easily lead to a heightening of tensions and possibly violence. In areas of pre-existing socialtension, the odds on such an outcome increase.

The absence of violence in a project area is no guarantee of what might happen in the future.Understanding the tensions that already existed prior to the arrival of the company, and anticipatinghow the project might impact on these tensions (and indeed on the wider socio-economic context),is fundamental to CSBP.

3.1 Linking analysis across scalesAlthough the project-level analysis seeks to capture the actors, issues and accompanyingdynamics relevant to the immediate operating environment, it needs to be contextualised withinthe findings of the Screening Tool and M-CRIA. Together, they will have highlighted key issues ofconcern at the national and international levels which may have important implications for whatis happening at the local level. For example, an armed struggle in a neighbouring country mayinvolve an ethnic or other group with strong ties to individuals or groups in the project area.Conversely, the project-level analysis may reveal issues that could be relevant at the national level,and these should be factored into subsequent reviews of M-CRIA. For example, tensions overcompensation for land acquired for the project may have arisen as a result of recent legislativereform, suggesting a possible source of conflict with the national government. Ensuring that someteam members double up on M-CRIA and P-CRIA is one way of ensuring such linkages are captured.


3.2 Defining the geographical scopeThe linkages between issues and actors at different scales are important in helping define thegeographical frame of reference for the project-level analysis. While the concession block providesan appropriate departure point, using below-ground characteristics or arbitrary parameters(e.g. 5km on either side of a pipeline) to determine what is relevant above ground will generatea fragmented and flawed analysis. The geographical or administrative region(s) in which the projectis situated may be a better starting point, but understanding of these boundaries will evolve as theanalysis deepens and the project takes form. The Screening Tool and M-CRIA will have proveduseful in highlighting neighbouring areas of conflict or high levels of tension, as well as groupsnursing particular grievances. The extent to which these might be connected to issues prevalentin the concession area and/or groups living there should be one factor in dictating the scope of theproject-level analysis. Equally, the evolving analysis may well throw up important connectionsto others living outside the concession area, who will need to be factored into subsequent stepsof P-CRIA.

3.3 CommunicationAlthough the project-level analysis is undertaken at a relatively early stage in the project lifecycle,it is nevertheless a priority that communicating information about the project begins as soon aspossible. The uncertainty that is often generated by the early exploration process has in the pastbeen a source of tension between companies and communities. Building a social licence to operateneeds to begin at the earliest possible opportunity and starts by ensuring communities and otherstakeholder groups feel they have some understanding and control of project design. Establishinginformation points in places and in ways that are accessible (and which don’t exclude particulargroups or communities) is one step towards doing this. Working closely with stakeholders identifiedin M-CRIA, or early on in P-CRIA, to convey information in a non-threatening way is another.Some companies have found it useful to take community representatives to visit similar sitesas a way of illustrating what the project might look like (and the time, cost and process involvedin its development).

Uncertainty over the nature of the project and unfamiliarity with industry practice and timeframesmay engender unrealistic hopes of an immediate windfall. The information provided needs toaddress these expectations head-on. The short-term attractions of promising ‘jobs and schools’can quickly become a problem for a company if those things fail to materialise (or themselvesbecome sources of resentment). It may be useful to draw up a ‘promise register’ to record thevarious commitments made by project staff throughout the early exploration stages (see FlashpointIssue 1: Stakeholder Engagement).

3.4 ProcessThe process and framework used for the first stage of the analysis are similar to the step-wiseM-CRIA analysis, and require a combination of desk research, targeted consultations with keyrespondents and internal company brainstorming across relevant departments.


Figure 2: Framework for analysis2

(i) Building on the findings of the Screening Tool and M-CRIA, use secondary sources to developa more detailed understanding of the concession area’s history and background, as well as thebroader regional social, political, security and economic context, the key actors/stakeholders, andhow these elements relate to each other. The findings of this first analysis will provide a basis forsubsequent consultations.

(ii) Conduct one-on-one consultations on the same themes with approximately 20-30 keyrespondents. These will include some of the individuals consulted during M-CRIA, as well aslocal politicians, branches of opposition parties, local media and NGOs, community-basedorganisations, respected community leaders and international development agencies or NGOsat the project level.

(iii) Categorise key issues and concerns under the headings, political/governance; economics;socio-cultural; security; adding in a ‘national’ section. Write up the findings into a detailed draft20-30 page report. This should highlight both conflict risk and positive factors that may helpmitigate conflict (e.g. traditional conflict-resolution mechanisms).

(iv) Conduct cross-department brainstorming in order to agree on the most critical issues. Thiscan lead to a discussion to assess likely project impacts on those issues (and vice versa). Impactidentification will be developed further through participatory research processes in Step 2.

(v) Consider options for mitigation measures to address negative impacts. With the exception ofimmediate priorities such as an effective communications programme, however, full developmentof mitigation strategies at the local level comes later once participatory research processes areunderway.

Profile

Stakeholders Issues

Dyn

amic

s Dynamics

Dynamics

2. Figures 2, 3 and 5 are adapted versions of diagrams for conflict analysis in International Alert, Africa Peace Forum, Cecore,CHA, Fewer, Saferworld (2004) Conflict-Sensitive Approaches to Development, Humanitarian Assistance and Peacebuilding:A Resource Pack. www.international-alert.org/publications.htm


3.4.1 ProfileThe profile is designed to provide a background narrative to the more detailed analysis of currentissues and stakeholders. It gives a brief characterisation of the local context, enabling a preliminaryidentification of key stakeholder groups as a more informed basis for subsequent consultations.The profile should cover the geographic or administrative region(s) in which the project is situatedand should include reflection on any history of previous investment in the locality.

Box 2 suggests an outline for the profile. The lists of issues are indicative rather than exhaustiveand should be adapted according to the specific context.

Box 2: Features of the project-level profile

1. Key factsPhysical geography, population size and make-up, numbers and size of towns, nature and size ofself-distinguishing groups (ethnic, tribal, etc), sites of special significance (environmental, religious,etc), mined areas, climate, social indicators (poverty, literacy, health, etc), religion(s), language(s).

2. HistoryDistinguishing historical background, political status of the region within the country, politicalevolution, past conflicts, disputes with central government, background to any previous industryinvestment, inward/outward migration, relations with neighbouring regions.

3. Political/social profileLocal governance structures, local elections, village/community structures, presence of armedforces, security situation, human rights situation, status of local media/judiciary/civil society,existence and status of minorities, status of women, importance of religion, presence of IDPs,return of refugees.

4. Economic profileIndustries, agricultural base, natural resources, (un)employment, rural/urban mix, developmentprojects, SMEs, business associations, trade with other regions.

5. Conflict (if relevant)Location/stage, critical events, peace processes, primary actors and stated agendas, number ofdeaths, infrastructure damage, importance of natural resources/economic inequality, other causes.

3.4.2 IssuesIn undertaking the issues analysis, identify the most important factors underpinning or threateningto lead to conflict if not properly addressed. As box 1 suggests, the absence of violent conflict inthe project area is no guarantee of a peaceful future. The issues analysis should explore the factorsthat contribute to grievances, even when these grievances have not yet resulted in violence. At thisstage, the focus should be on the operating environment, as distinct from the project. Potentialrisks associated with the interaction between the operating environment and the planned projectwill surface in the brainstorming around impact and subsequent steps of P-CRIA.


Structuring the issues analysisStart with the background information provided by the preliminary profiling, and develop andenhance it through targeted consultations and further research. Categorise the key findings underfive clusters: governance, economics, socio-cultural, security and national. Each cluster can thenbe further broken down into a series of sub-headings appropriate to the specific context.

The analysis will throw up a large number of factors, many inter-related. In thinking about these,it is useful to understand them as:

Structural or root causes. Pervasive factors that have become built into the policies, structuresand fabric of a society. Examples could include the lack of political participation (or specific exclusion)of particular groups, systemic corruption, absence of (or inequality in) distribution of economicbenefits and marginalisation of women. Structural causes of conflict are inevitably the most complexand long-term but constitute an ever-present threat.

Proximate causes. Factors that are symptomatic of the root causes and may heighten the riskof violent conflict, or exacerbate and perpetuate existing conflict (e.g. availability of light weapons,widespread human rights abuses, the objectives of political actors). Proximate causes take on aparticular importance at the local level. For example, even when easy access to weapons does notlead to conflict, it increases the threat of violent crime directed against the company or thoseworking for it. Likewise, the risk of the company becoming associated with human rights abusesis greater if they take place in areas where the company is operating.

Triggers. Single acts, events or their anticipation that may set off or escalate violent conflict.Examples could include elections, the behaviour of political actors, increased food scarcity andenvironmental disasters. Many project impacts (e.g. security arrangements, resettlement andcompensation policies) are potential triggers of violence.

Box 3: Sample questions to guide P-CRIA conflict issues analysis

For each section, list and analyse all the pertinent issues, making sure to collect possible‘trigger or escalating factors’, as well as issues that are positive indicators, where appropriate.The questions shown below are indicative only and are not comprehensive or exhaustive.Sensitivity must be applied in the gathering of information.

Political/governance. What is the form of local-level governance? How democratic, representativeand legitimate is it? How effective is local government in providing basic public services? How arecompeting local interests managed? Have there been local elections and what was the turn-out?Have local authorities been accused of violating human rights?3 Against specific groups? Is thereany accountability for abuses? How independent is the judiciary? What is the level of corruptionwithin the local public sector? What types of corrupt activities occur? What effects do these have?How does the local population view corruption?

Economic. What are the principal sources of income in the locality? How reliant is the local economyon primary commodities? What is the economic wealth of the locality vis-à-vis the rest of thecountry? Are there any identifiable socio-cultural groups that are economically better or worse

3. If human rights abuse is identified as a particular issue of concern at the project level, additional specialist assessments may bewarranted, for instance the Danish Centre for Human Rights’ Human Rights Compliance Assessment Tool for Companies. www.humanrightsbusiness.org/compliance_assessment.htm


Box 3 (continued)

off than the general population in the locality? Is competition for control of resources a sourceof tension? What is the extent of the public sector’s role in the local economy? To what extentis local-level public sector employment awarded on merit? Are certain groups excluded orfavoured with regard to public sector employment? What is the level of unemployment in thelocality, particularly among youth? Who locally make up skilled labour? Is this across or withinsocio-cultural identity groups? What is the history of labour relations in the locality?

Socio-cultural. What are the major socio-cultural groups located in the area and what definesthem as identifiable ‘groups’? What are the prominent minorities in the locality? How are minoritiesviewed and treated by the majority? What different languages are used, how are they used andwho uses them? What is the role of women? Are there any differences between the local andnational levels in the way women are treated? What is the traditional role of men? Is masculinity,when expressed through violence, culturally acceptable/expected? What religion is practisedlocally, and how does this relate to religion in the country as a whole? Are differing socio-culturalsymbols and places of worship respected by all communities? How balanced and pluralisticare local media? How important are they? Whose opinions do they represent? Do certain localpoliticians and businessmen have undue influence over the local media?

Security. How safe is the locality for the general population? What are the perceptions of security?Are certain members of the population and neighbourhoods safer than others? What in the localityare seen as ‘legitimate targets’ for rebel groups (e.g. security forces only, businesses, specificgroups)? What is the level of crime, particularly violent and economic crime? Who perpetratescrime and for what reasons? Is the trafficking of people for labour or prostitution an importantissue? Is security provided by police, private security companies and/or criminal elements?How are these private security services viewed by the general population and local authorities?What is the nature and availability of weapons (e.g. small arms, explosives, etc)? Who hasaccess to weapons? How are they used (e.g. bombing campaigns, forced conscription, sexualviolence)? Where do they come from (e.g. cross-border)?

National. How do the dominant political, economic and social issues inter-relate or differ at thelocal and national levels? Has the discovery of natural resources changed the national government’sapproach? How is revenue to local government allocated? How is the national government viewedlocally? Are there tensions around autonomy/self-determination?

3.4.3 StakeholdersThe stakeholder analysis is a preliminary assessment designed to:

• Inform and deepen the overall analysis• Enable the company to understand and manage its relations with key individuals and groups

more effectively• Provide an opportunity to begin developing relationships with those individuals and groups• Identify those with whom the company might wish to develop closer working relationships.

Understanding relations within and between stakeholder groups is as important as understandinggroup perspectives.


Box 4: ‘Expert’ stakeholders

CSBP takes an inclusive and iterative approach to defining and mapping stakeholders. The keypriority at this stage of P-CRIA is to understand ‘who is who’ in the locality. The potential impactof the project on these individuals becomes a criterion guiding engagement in the next step.

1. Political/governance. Local politicians and officials (pro-government and opposition), local judiciary, armed groups (see Flashpoint Issue 7: Dealing with Armed Groups).

2. Economics. SMEs, local chambers/business associations, other multinational companies,farmers’ associations.

3. Socio-cultural. NGOs, women’s and religious organisations, community leaders, local media.

4. Security. Local police, army officers stationed locally.

5. National. As with M-CRIA, including also local offices of international and capital-city basedorganisations.

Structuring the stakeholder analysisIn undertaking a stakeholder analysis, there are a number of key questions which need to beconsidered for each stakeholder:

• Interests. What interests does each stakeholder group have, including towards the conflict andhow do these interests manifest themselves in practice?

• Relations. What are the relations among and between them (consider factions within groupsand the impact of these, power dynamics, conflicting interests etc)?

• Capacities. What capacities does each group have to influence conflict (positively or negatively)?• Peace agendas. What visions of peace do the stakeholders have? What kind of peace do they

want? What are the main elements of their peace agendas (e.g. political/social reform, nationalautonomy, economic change)?

• Conclusions. What implications does this analysis have for the likely direction ofconflict/instability? What implications does it have for the company, both in terms of managingpotentially difficult relationships and developing strategic partnerships with key groups?

As with the issues analysis, this section is more than a simple statement of facts. The stakeholderanalysis should avoid generalities and aim to pick up the underlying subtleties of inter-grouprelationships and different perspectives. For example, the perceptions that stakeholders holdabout their situation are as important as ‘the reality’. The analysis should aim to capture theseperceptions, noting particularly how they differ within and between stakeholder groups. Box 5gives examples of indicative questions to guide the research under the same headings.


Box 5: Sample questions to guide P-CRIA stakeholder analysis

For each section, list and analyse all the relevant actors, including their needs, goals, intentsand preferences, and their inter-relations, and draw some conclusions as to likely scenarios inthe future. As with the issues analysis, the questions shown below are indicative not exhaustive,and sensitivity should be applied in the gathering of information.

Political/governance. Who holds de facto political power in the locality (regional governor, localelected political leader, armed groups)? Are local political parties controlled from the capital orrelatively autonomous? Which individuals and small groups of individuals dominate local politics,and which spheres of political life do they control (e.g. planning permission, local taxes, localsecurity forces, public sector jobs, etc)? How much power does central government have to imposeits will locally (e.g. collect taxes, provide security)? Which local civil or community leaders arerespected, and why? Do opposition parties have branches in the locality? How well supportedare they?

Economic. Are socio-cultural groups associated with particular economic livelihoods? Howdo they ‘protect’ such economic livelihoods? In the locality, how important are publicly ownedenterprises? Are the heads of these enterprises political appointees? Are certain groups excludedfrom public enterprises? Do certain private businesses get preferential treatment from publicsector enterprises? How significant are SMEs? Are they obliged to pay bribes? Do they have topay unofficial taxes to any state or non-state armed groups? What are the multinational companiesin the area, and how are they viewed in the locality by armed groups, government forces, localpolitical leaders, local business and the population at large? What trade unions are locallypresent and how are they organised? How powerful or marginalised are business associationsand trade unions?

Socio-cultural. Which are the major socio-cultural identity groups in the locality? Do they haveidentifiable and respected leaders? What are the relations between them? How important aretraditional or religious leaders in mobilising public support or hostility to any initiative locally?What particular interest do these local socio-cultural groups have in national politics? Whatare the major forms of obtaining and sharing information (local newspapers, local radio, wordof mouth), and have these media been connected to rising tensions? Are certain local civilsociety organisations or NGOs associated with particular groups? Which civil society organisationsenjoy wide support and are seen as legitimate and representative? Does civil society influencelocal policy and politics in any way? How has migration (forced or unforced) affected thedemographics of the area over the last 20 years? What groups are migrating and why (forcedmigration, economic migration)? How are local groups of migrants, refugees and IDPs organised,and what are their primary political and economic interests?

Security. Who provides security? How are security forces viewed? Are they implicated in abuses,extortion or corruption? What is the relationship between local and national security forces?Are local non-state armed groups significant political and economic players? Who controls criminalactivities? Do the authorities deal with these individuals or do they operate with impunity? Is therean international security presence? How does the general population view it?


National. What is the relationship between local and national political elites? What presence androle do national stakeholders have in the locality (opposition political parties, media civil societyorganisations, etc)? Are there tensions between national and local stakeholders? How do thesemanifest themselves?

3.5 Initial impact identificationThe final piece of Step 1 helps to make a preliminary assessment of the likely project impactson the context and vice versa, based on internal company brainstorming over the findings of theproject-level analysis so far. In the early stages of the exploration process, a significant degreeof uncertainty remains as to the specific project parameters (or indeed whether the project willproceed at all). As with the equivalent stage in M- CRIA, however, certain impacts on the projectarea can be predicted based on the analysis already undertaken and previous experience.

Figure 3: Two-way interactions between project and context

Profile

Stakeholders Issues

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Impacts occur at the project level that can have implications for conflict as a result of decisionsaround the following issues (many of which are detailed further in Section 4: Flashpoint Issues):

• Location of a project installation. This may affect access to key sites such as wells, forestsor other places with cultural value; it may also lead to resettlement of people and consequentcompensation claims, etc.

• Environmental impacts. These range from the use and pollution of local river or sea watersto spillages and emissions.

• Recruitment of staff. Projects may create inward migration of other communities in searchof jobs; recruitment can favour different groups as companies seek the right skills; wageswill change the local distribution of wealth and power.

• Community relations. Interaction with communities may influence people’s perceptions ofthe project; social investment projects also feed into local tensions and dynamics, and becomea source of conflict.

• Relations with local government. Companies can become involved in the rent-seeking behaviourof local authorities, exacerbating poor governance tendencies; they can inadvertently underminestate capacity by becoming the major provider of services to communities as a result ofsocial investment programmes.

• Security arrangements. The conduct of security forces will influence people’s perceptionsof companies and, in certain situations, the local conflict or human rights situation.

To begin the initial impact identification, the findings of the research into profile, issues andstakeholders should first be written up into a 20-30 page draft report, including best, most likelyand worst-case scenarios for the future of the locality with regard to conflict. The draft reportwill then serve as the basis for internal discussion with company staff in order to develop ideason different issues and stakeholders likely to be impacted by different dimensions of the project.It is critical that a cross-section of company staff engage in this process given that a range ofbusiness activities is likely to have impacts. They should include geologists, political risk andsecurity managers, and staff from the external relations, procurement, human resources andmanagement departments. Brainstorming with these internal stakeholders is a crucial steptowards mainstreaming a conflict-sensitive approach to the operation across staff, throughsensitising them to the impacts of their individual areas of responsibility. It helps to develop therequired communications mechanisms and procedures for implementing and monitoring P-CRIA– and CSBP as a whole – as it moves into deeper stages. These internal discussions also helpidentify any necessary project redesign by throwing up serious risk factors.

P-CRIA accompanies the entire lifecycle of a project, shifting and accumulating new strands asdesign of the project progresses and relationships deepen. It enables understanding of impactsto develop in tandem with the project itself. Separating the project stages into component parts(e.g. geological surveys, exploration and drilling, production, closure), and repeating and deepeningthe analysis and impact identification process accordingly raises the likelihood of ensuring thatall impacts and all impacted groups are identified in time to design appropriate consultation andmitigation strategies at each stage of project development. Particular events, both internal(new developments of the project) and external (changes to the political landscape) should promptadditional updates.


Findings of the internal discussions should be added into the conflict analysis report, which becomesa tool that is regularly updated during the lifecycle of the project, including the findings of deeperparticipatory research into context and impact with stakeholders (see Step 2).

4. Step 2: Participatory analysis and impact identificationAlthough an important component of Step 1, engagement with stakeholders has so far beenrelatively limited. With a better understanding of the context and the project parameters, however,it should now be possible to move to a more systematic dialogue with those initially identified aslikely to be directly impacted.

4.1 ProcessEngaging in the kinds of participatory processes envisaged by P-CRIA is a huge step forward interms of level of community involvement and needs to be approached cautiously. Contracting ateam of independent facilitators is an essential part of the process, which should consist of anongoing programme of participatory sessions reaching out to a wide range of different stakeholderrepresentatives, sometimes together, sometimes in smaller groups. The purpose is to understandthe context better through eliciting the perspectives of different parts of local society, and tounderstand likely project impacts, again as viewed by different parts of society.

The following four key questions should guide design of the process (also see Flashpoint Issue 1:Stakeholder Engagement):

4.1.1 Who needs to be engaged?The term ‘stakeholder’ needs to be understood as broadly as possible. The main criteria foridentifying and engaging with these individuals so far in both M-CRIA and the project-level analysishas been their expertise and/or importance as representatives of particular perspectives orconstituencies (see box 5 above). As the project develops however, it is useful to distinguish betweenvarious categories of stakeholders on the basis of impacts, as the company will need to developdifferent levels of engagement with each.4

Primary. Those who will find their lives and livelihoods directly changed through the developmentof the project are primary stakeholders. ESIAs generally identify most of these groups sincethey are likely to be those impacted by relocation and resettlement, transport and infrastructurerequirements, destruction of farm land, pollution, the arrival of an external workforce, etc.An important added value of P-CRIA here is that standard ESIA procedure is to identify suchgroups on the basis of geographical distance from the project, transport corridors (e.g. pipelines,roads) or security and construction camp emplacements. This is rarely likely to prove adequategiven that it is fixed, arbitrary and not based on the specific context. Also, ESIAs tend to be undertakenat one particular moment early on in the project history. As such, they can miss those who maybe impacted by major developments later on. The P-CRIA analysis will enable a more nuancedand iterative identification of primary groups.

Secondary. Those impacted by changes to the condition of the primary stakeholders are secondarystakeholders. Most obviously this includes communities into which - or close to where - primarystakeholders are resettled. However, secondary stakeholders can be impacted in a variety ofdifferent and complex ways (e.g. disruption to a fishing community may have implications formarket traders some distance away).

4. The categorisation of primary, secondary and indirect is repeated for impact identification (see below), and is adapted from Shell International Exploration & Production B.V (2003) Impact Assessment Guidelines – Social Impact Assessment Module.


Indirect. Those impacted by changes in the overall political, socio-economic and security contextare indirect stakeholders. For example, corruption may increase at the local level involving orimpacting certain stakeholders; or the presence of more security forces may precipitate a clampdownon dissent or greater levels of human rights abuses. M-CRIA is designed to anticipate these impactsat a national level but corresponding impacts of this nature at the project or regional level needto be included and, where possible, addressed in the P-CRIA process.

Although there is an inherent prioritisation implicit in this categorisation, from both conflict-sensitiveand good community relations perspectives, it is important to understand the full spectrum ofimpacted groups. Only basing the identification of these groups on anticipated impacts, rather thangeography, can do this.

Engagement in extensive participatory processes that are designed to reach all levels of impactedstakeholders on an ongoing basis throughout the project history might be considered problematicfrom a company perspective. Budget and time demands mean that companies feel they have littleleeway in terms of initiating protracted consultations. However, the benefits of including stakeholdersin developing a common analysis of their situation from the earliest possible moment, identifyingpotential impacts and generating ideas for mitigation strategies, are considerable. In terms oftiming, the process should be upfront as a second step to P-CRIA, but will also continue unfoldingthroughout the lifecycle of the project.

4.1.2 What will be the impact of the engagement process?The first priority is security. Will participation put anyone at risk? There are a number of waysin which this might happen:

• In certain contexts, informers have been known to infiltrate community meetings,putting those who speak out at risk

• Public airing of grievances or problems (or indeed support) can invite accusations ofendangering the project (or collaborating with the company), possibly precipitating reprisalsor ostracism

• There may also be real security risks associated with engaging with armed groupsor their affiliates.

Even in less extreme cases, governments or local authorities may be reluctant for companiesto engage in dialogue with certain stakeholders. This can pose a political and legal dilemma,but can often be addressed through lobbying the government or through the strategic use of thirdparties. It is important to remember that a path of non-engagement with certain key groups -including the most ‘difficult’ – can itself create risks, ranging from breeding resentment to makingthe company a target for sabotage or kidnapping (see Flashpoint Issue 1: Stakeholder Engagement;Flashpoint Issue 4: Indigenous Peoples; and Flashpoint Issue 6: Dealing with Armed Groups).An inability to engage in proper consultations, for whatever reason, should trigger a review ofhow, and if, to proceed (see box 11).

The engagement process can affect power structures. Engaging through existing representativestructures might serve to consolidate an unjust status quo. The use of middlemen or elders toliaise between companies and communities is a common company practice, though it can generatecompetition and patronage. Not all cultures embrace participatory processes and, even when theydo, particular sub-groups may be excluded (for instance, women or lower castes). Such cases


demand a creative approach by the company, one that achieves the same objectives but usinga different (perhaps more informal) process. The alternatives need to be sensitive to the factthat undermining traditional structures by, for example, ignoring a community’s caste dynamicsin the consultation process, can be just as damaging.

Tensions may exist prior to the company’s arrival, making difficult the types of encounters envisagedby P-CRIA. Equally, the prospect of the project may awaken dormant divisions that only becomeapparent during the consultation process. The opposite may also be true: the prospect of the projectmay introduce greater common interest than was evident before. The earlier that tensions areidentified and measures taken to address them, the less likely they are to escalate.

Lastly, but of key concern to the company, these types of intensive discussions are more likely toraise future expectations among different stakeholders, and may become a forum for the expressionof grievances, needs and aspirations. Managing this dynamic sensitively can best be done throughabsolute transparency from the outset as to the intended purpose of the meetings, and the long-term goals, intentions and likely trajectory of the project itself.

These are immensely difficult challenges for which there are no easy answers. Company fearsthat communities will use consultation to vent demands and grievances is not a sound reasonfor not engaging. The reality is that a company investment is a part of the local context from themoment the first geologist steps into the area. Acknowledging this fully, and taking the stepsoffered through P-CRIA towards understanding its significance, including through creating safespaces for dialogue and maintaining an open approach to social complexities, is an essential meanstowards winning a social licence to operate and a fundamental component of the CSBP approach.

4.1.3 How much preparation is required?Consultation processes need to recognise and address the likely power and capacity imbalancesbetween company and stakeholder groups. As far as possible, the objective is to discuss on anequal basis rather than negotiate from a position of strength.

The information and resource gaps that exist among stakeholders may inhibit their ability tomake an informed analysis of the context and the consequent project/context impacts. These gapscould include information about the company, the proposed project or even negotiation skills.They emphasise the need for an effective information-sharing strategy from the earliest possiblestage. Stakeholders should be informed about the project’s constituent phases (geological surveys,exploration, construction, production, closure, etc); contingent requirements (land, infrastructure,workforce, etc); and accompanying processes (resettlement, road-building, recruitment, etc)as far as possible. Other mechanisms may also be needed. Independent third parties (e.g. NGOs)can provide valuable support and advice to communities. Training in negotiation or facilitationskills for community representatives is another valuable initiative.

The dialogues should take place at times and in places convenient to those involved. This meansnot only choosing suitable venues (company property may be inappropriate), but schedulingmeetings around people’s everyday activities. Those who live a subsistence existence cannotnecessarily afford to take time out during the day to meet company representatives. All theseconsiderations need to be factored into company planning well in advance if the consultationprocess is to realise its objectives.


Box 6: Tripartite dialogues in the Amazon region

A series of tripartite dialogues on the hydrocarbon sector were initiated in the Amazon regionsof Bolivia, Colombia, Ecuador, Peru and Venezuela in 2000, lasting for two-and-a-half years.Their purpose was to improve the channels of communication between government, oil companiesand indigenous groups because interaction historically had occurred only in reaction to conflict.Participants were selected on the basis of an expressed interest in promoting mutual understandingbetween sectors, using a narrow definition of stakeholder to focus on those judged to have a ‘real’stake. The point of departure in the dialogues was not whether oil development should occurper se, but under what conditions, constraints and responsibilities. The dialogues did not relateto any specific project development.

A series of ground rules underpinned the dialogues and encouraged a free and frank exchange.These were:

• Confidentiality of the names of the participants and non-attribution of content• Open and non-adversarial discussions and analysis to seek mutual understanding• Equality of participants in addressing concerns (recognising the asymmetries in power

in the external reality)• Dialogue not negotiation• Strictly facilitative role of third party.

The process went through a series of stages:

Initial meetings in each country with 2–3 representatives from each sector to design the process.A cycle of three workshops was agreed in each country, with space for adaptive managementof the process.

Workshop 1. Scene-setting bringing together 25-40 participants from the state, national andinternational companies, and indigenous organisations using participatory workshops, role play,‘ice breakers’ and informal discussions. The objective of the ‘playful’ approach was to promotemutual identification, framing the dialogues as between individuals rather than sectors. Eachsector was asked to identify ‘hot issues’ though these were not discussed in detail. Two key questionswere articulated by the participants, for which they would prepare ‘orientations’ for the secondround of workshops, these were:

• What do you want to know about the other sectors?• What do you want the other sectors to know about you?

Workshop 2. Mutual knowledge using presentations based on the ‘orientations’. This mutualexchange of information was broad-ranging, including long-term visions of development, experiencesof other extractive industries, detail on the oil industry (including contracts, relations with governmentsand between companies, national policy) and perspectives on ‘outsiders’. Some role-playingtechniques were practised on prior consultation, and the ‘hot issues’ were advanced a little.

4.1.4 If things go wrong?Given the complexities of project development and its interaction with host societies, it is inevitablethat problems in relationships with stakeholder groups will emerge. These may be manifestedthrough a refusal to meet and talk, or the appearance of roadblocks or campaigns against thecompany. It is easy in such circumstances for company staff to adopt a defensive or embattledapproach, branding those who criticise the company as ideologically opposed to investment, or asacting under the influence of ‘external actors’. Though there may be some truth in this, adoptingthis attitude runs the risk of disregarding genuine grievances and may be ultimately self-defeating.Allowing a problem to fester does not help the company repair critical relationships.


Workshop 3. Constructive relationships delivered training on dialogue methodologies, so thatparticipants could both be better participants and convene dialogues themselves.

Tripartite regional dialogues were then convened with selected participants from five countriesand three sectors. Discussions were first held among each sector, so they could propose whatcould be done as a sector. The participants then reconvened by country to plan what they coulddo in each. Different proposals emanated from each country.

Specialist training on participatory dialogue was delivered to a handful of the participants to groomthem as future facilitators.

A series of key lessons can be drawn from the process:

• The escalation of conflict is worsened by a lack of information, and yet the sectors tend notto talk to one another. The more one sector knows about the other, outside a conflict situation,the better they are able to cope with a conflict situation when it arises.

• Many conflicts arise where the state is weak; strong states can dramatically reduce conflictbetween indigenous peoples and oil companies. Institutional strengthening, for example throughcooperation with the state to deliver health services, will help build a more pacific environment.The creation of parallel structures, or the direct provision of funds for health facilities, does nothelp achieve this.

• There is a significant lack in institutional capacity when it comes to accountable facilitators whoare both impartial and capable.

• Sectors are not homogenous; there is a tremendous diversity within each. Processes suchas the tripartite dialogue are more effective when continuous.

The partner organisations organising and facilitating the process were Fundaçion Futuro Latinoamericano (FFLA), Carl DuisbergGesellschaft and the Program on Non-Violent Sanctions and Cultural Survival at Harvard University. FFLA (www.ffla.net) – is a private,not-for-profit organisation committed to fostering change toward sustainable development in Latin America. FFLA uses consensus-based public policy dialogues and conflict resolution methodologies as its main strategies. FFLA’s methodology typically generatesconsensus-based outcomes supported by a full range of stakeholders, increasing the chances for successful implementation.FFLA focuses in five key areas: energy and sustainable development; trade and sustainable development; sustainable forest management;local governance; and freshwater management.

Disputes often arise over specific environmental or technical issues. In such cases, commissioningindependent research, coupled with a prior agreement to abide by its findings, may be all that isrequired. In other cases, targeted dialogue, underpinned by clear guidelines and principles, andinitiated as early as possible, will probably be the best mechanism. Such guidelines can include:

• Use of a third-party facilitator, agreed to and invited by all parties• Recognition of the legitimacy of other parties and their concerns• Establishment of ground rules for the dialogue process (see box 7)• Acceptance of an open agenda• Time to see the process through• Admission of past wrongs.

Box 7: Codes of conduct for dialogue

Exploration of three wells in the Amazon region in Ecuador resulted in a breakdown of relationshipsbetween an oil company and the indigenous peoples whose territory was affected. The disputecentred on the compensation agreements negotiated with other affected communities.

A third party, Fundaçion Futuro Latinoamericano, was called in by the company and invited by theparties in June 1999 to initiate a process of facilitated dialogue, broken down into two stages:

1. Negotiation of a code of conduct for dialogue2. Dialogue on conditions and compensations for the company’s exploration activities

on indigenous territories.

The indigenous community refused to negotiate with the company until a code of conduct wasagreed. There was no discussion of conditions or compensation in the first phase. Instead, thenegotiations served to surface many conflict issues which were subsequently addressed throughthe process of drawing up the code of conduct, thus solving many tensions prior to the actualdialogue itself. In other words, broader relationship issues were de-linked from the specific concernsthat triggered the dispute.

The role of the facilitators was to:

• Create trust in the process of dialogue• Establish good communications between parties• Structure discussions such that they could elicit clear expressions of willingness to negotiate,

help articulate interests, and foster constructive conversations.

It took approximately five months to draw up the code of conduct setting out the principles,procedures, requirements, responsibilities and obligations governing the dialogue. The code ofconduct also established the presence of the state as a third party in the negotiations. It took afurther three months to produce an agreement on compensation.

The full code can be found at: isis.hampshire.edu/amazon/oil/code_eng.html


4.2 Structuring the participatory consultationsWhere the basic framework of governance, economics, socio-cultural and security is a usefulframework for organising information gathered through desk research and targeted consultations,a more open approach is likely to be necessary to guide the participatory analysis and impactidentification. Step 2 is about developing a richer understanding of the communities themselves,their way of life and the challenges and difficulties they face. It is also about the company takinga more active involvement with the affected stakeholders, thereby becoming a participant in theprocess.

Box 8: Shared analysis process

In 2001 a company operating in Indonesia began a Participatory Rural Appraisal (PRA) processamong several affected communities near their copper mine. A development NGO was boughtin as the third-party facilitator, who identified the formal and informal community leaders andmembers to lead the process. These were then trained (alongside several company staff) for threedays in conducting PRAs. Following the training, the villagers returned to their communitiesand conducted PRAs, supported by the NGO. A shared analysis was developed on:

• What resources the community has• What the community wants to develop• Internal obstacles• Needs.

The process culminated with a plenary bringing all the findings together for discussion,including the local government and the company. This then helped inform social investment design.

4.2.1 AnalysisThe literature on participatory processes is extensive (see Resources). Different tools andmethodologies are appropriate at different phases of the consultation process and accordingto the desired outcome. The Annex to P-CRIA includes a selection that may be particularly usefulfrom the perspective of analysing conflict or social tensions. Such tools, however, are only everas useful as the skills of those using them. This again emphasises the importance of bringing inexperienced facilitators.

The analysis generated through these dialogues should not be considered ‘definitive’.Perceptions and understanding vary from one group and, indeed, one individual to the next,and each consultative process brings to the fore a variety of perspectives. Clearly, the greaterthe degree of convergence around particular issues, the more confident the project team canbe in the analysis. Where significant disagreements occur, they should be noted since perceptionsare potentially as important as any objective ‘reality’. The findings from this process can be usedto add to the basic issues and stakeholder analysis undertaken in the preceding stage, basedon the P-CRIA team’s synthesis of findings. As discussed on p.16, the conflict report of Step 1should remain a live tool, regularly updated.


4.2.2 Impact identificationA full exploration of impacts is only possible through discussions with impacted stakeholders.The participatory element is important not only because those affected by the project need tobe engaged in understanding and defining how the project will impact them, but because theirknowledge will be key to identifying other groups who will subsequently need to be consulted.This kind of process clearly requires that the stakeholders are adequately informed about theproject, as detailed above.

Figure 4: Iterative impact identification process

The process, as shown in figure 4, mirrors the overall circular P-CRIA framework. Initial assessmentof impacts will lead to an identification of likely impacted groups. Working with those groupswill enable a better understanding of the nature of the impacts and elicit other impacts which,in turn, will mean engaging with other stakeholders.

The cycle of consultation on context analysis and impact identification should be implementedin accordance with advances in the development of the project and greater clarity over theproject parameters, responding to external shifts in the context at both national and project levels.In principle, the focus of the consultations (and indeed the identity of the impacted stakeholders)will reflect what is known about the project at the time. This will help minimise unduly raisedexpectations over a project that may never go ahead, and ensure the company does not find itselfengaging too deeply until it is more certain of its own long-term presence. In practice, maintaininga balance between looking ahead to anticipate and plan properly, and not pushing forward withengagement with issues and groups while uncertainty remains, is a difficult one. The approachthe company takes should be determined by the specific context.

Transferring some degree of decision-making to the stakeholders is critical to the success of thisprocess. This does not relate simply to assessing the nature of the impacts, but also exploringproject re-design options if stakeholders feel there are sufficiently strong arguments for doingso (see box 9). This does not preclude the company’s perspective. The company should recognise


Impactedgroups

Impactidentification

Explorationof impacts

and communicate its role as an equal stakeholder in an analysis and consultation process withother stakeholders, rather than as a decision-maker to be lobbied and pressured. This resultsin a better process and enhances the chances of emerging with a consensus and sense of sharedownership.

Box 9: Decision-making and project re-design

At a zinc project in South Africa, one company undertook an extensive stakeholder engagementprocess, leading to informed/consultative decision-making on project components. The consultationbegan during feasibility studies involving meetings and one-to-one engagements with over 300interested and affected parties, open days and visits to the mine site over a two-year span, anda dialogue process with environmentalists and other stakeholders. The dialogue process withthe environmentalists was chaired and coordinated by World Wildlife Fund, and generated goodworking relations with many of the parties. One of the decisions reached through the dialogue wasto resite the tailings dam to minimise the impact on rare succulents in the habitat.

There are three general types of impacts that reflect (and are closely bound up with) thecategorisation of impacted stakeholders:

Primary. What happens as a direct result of a feature of the planned project. This would includeemployment generated by construction, rivers affected by pollution, disruption to traditionallivelihoods through resettlement, etc.

Secondary. The knock-on impacts resulting from the above: e.g. tensions which arise betweenrelocated and host communities, creation of new industries to service the project and declineof existing ones. Secondary impacts can also have follow-on effects (see box 10).

Indirect. Impacts on the overall political or socio-economic system. These include increased ratesof detention, higher levels of corruption and restrictions on the freedom of the press. Equally, itmight mean better provision of social services, lower taxes, etc.

Box 10: Causal chains

Primary impacts can trigger other changes or provoke reactions. Causal chains speculate a potentialchain of events that may occur from a specific trigger event. In situations of conflict or tension,reactions often escalate, drawing in other actors and issues in complex interplays. As with anothertool that is often used, ‘scenario building’, causal chains describe a hypothetical future.

For example, an accident at the project site causes the release of tailings into a river, reducingfish stocks. The fishermen react by protesting at the mine. The company increases its security,including bringing in a private security firm. The security firm uses force to break up the protestsand several protestors are injured. An international advocacy organisation hears about the incidentand publicises it on the internet. The fishermen take legal action against the company. The injuredprotestors sue for compensation.


Box 10 (continued)

This hypothetical situation shows how one event or impact can precipitate a series of actionsand reactions which escalate and draw in other parties. Multiple different reactions may emergefrom a trigger event or its reactions.

In understanding impacts, it is important to anticipate a range of potential knock-on events inorder to avoid events sliding out of control. Clearly, any number of causal chains could be developedfor each and every impact so a degree of prioritisation is required. The participatory process assistsin identifying the most critical potential impacts.

Illustrating the relationship between impacts and impacted groups in this way emphasises thatit is the impacts that constitute the main criteria for identifying stakeholders. Companies shouldbear in mind the distinction between impacts resulting from the project itself (primary and secondary),and impacts related more to the wider effects of natural resource extraction on the context (indirect).

The impact identification process should be used as a basis for informing the company’sunderstanding of the likely impacts on itself, although this should be refined by the P-CRIAteam in conjunction with relevant departments. These can range from the financial costsassociated with resettlement and compensation, to the potential reputational risks of beingclosely associated with a repressive regime.

In addition to drawing up causal chains, there are a number of other tools available for generatingan understanding of impacts:

• Scenario planning. Brainstorm the best, most likely and worst-case scenarios by consideringthe key predicted impacts in the context of the findings from the project-level analysis. Scenarioplanning is most valuable for exploring context (indirect) impacts, but can also be used forproject (primary and secondary) impacts.

• Mapping impacts across stakeholders. Assess the cumulative impacts across the spectrumof stakeholder groups. This helps to understand whether one group benefits or suffers disproportionately from the project.

• Specialist work teams. Given the technical nature of certain project impacts, it may be impracticalto explore them in large workshops. Establishing a team of technical experts and stakeholderrepresentatives to work through the issue is a more appropriate mechanism.

The process of participatory analysis may unearth some critical likely impacts that cause a companyto rethink its investment, even at this stage.


Box 11: Potential ‘showstoppers’ at the project level

Companies cannot always operate in a conflict-sensitive manner; in some circumstances theyunavoidably contribute to insecurity and violence at the local, regional or national level. Potentialshowstoppers at the macro level were discussed in the Screening Tool. Potential showstoppersat the project level should emerge in the process of project-level analysis and are dependent oncontext, and the particular project within it. It is possible to point to three ubiquitous factors alertinga company to an impossible situation from the perspective of conflict-sensitivity, however:

1. If there is no possibility of creating any form of safe space for shared analysis, this should signifya ‘no go’. A company cannot be conflict-sensitive if the political space for stakeholders to engagein discussions about the investment is so limited due to the restrictions imposed by a repressiveregime.

2. If it emerges that security payments will be demanded from staff or the project, this shouldsignify a ‘no go’, unless the company feels confident it will be able to overcome demands throughalternative means such as developing relationships with all local communities in such a wayas to achieve a cordon sanitaire around the operations. Security payments to armed groupsunavoidably prolong and potentially escalate violence (see Flashpoint Issue 6: Dealing withArmed Groups).

3. If it emerges that the company cannot operate in the area in accordance with international lawand its own business principles (see Screening Tool).

5. Step 3: Participatory mitigation design and implementation

Figure 5: Conflict-risk mitigation strategy

The preceding steps will have identified critical issues existing prior to the company’s arrival(e.g. systemic problems within the local society, open or latent tension between communities)and assessed the likely impacts of the development of the project on stakeholders and on theoverall political and socio-economic context itself. The next step is to design management andmitigation strategies to address both the underlying issues and the likely impacts of the projectacross all areas of the business.


Profile

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5.1 ApproachA common mistake is to assume that by providing jobs and paying taxes the company is fulfillingits responsibilities to the society in which it is operating, or that any additional contribution throughsocial investment is of itself ‘good’. Neither assumption is true. Institutional and governance failingsin many conflict-risk countries mean that revenue is not used for the benefit of the populationas a whole. At the same time, failure to understand and address real needs through social projectshas resulted in many flawed interventions whose effect is at best negligible and, at worst, divisive.Experience over the past decade, both from extractive industry projects and from the developmentand humanitarian aid sector, suggest that development itself can create conflict at a communitylevel (for example, over access to the ‘benefit’) or at a national level (by allowing the governmentto neglect its responsibilities to its people).

Company mitigation strategies must therefore accomplish several things:

• Address all aspects of business impact• Address real needs at the local level• Be sustainable• Avoid creating a dependency culture by simply providing services• Take into account and address the wider structural issues underpinning the conflict

or under-development within the society.

These strategies must also be developed in the context of enormous expectations, both fromthose who live in the region where the resource is located and in the country at large. P-CRIAemphasises the need to address these expectations from the earliest possible stage throughtransparency, open communication and participatory consultations.

Inevitably, discussions around mitigation strategies – especially as they relate to socialinvestment projects – will be heavily influenced by the needs, aspirations and grievancesof individual stakeholders or communities. Often, these might be presented as ‘demands’.The challenges of dealing with the separate and, perhaps, contradictory and competing callsfor infrastructure, service provision or other development projects by different stakeholdershave resulted in flawed approaches on the part of companies by:

• Insisting on complete control over the design of mitigation strategies in order to avoid the problem of juggling competing demands. This risks inappropriate initiatives which have littlepopular support and therefore prove unsustainable.

• ‘Buying off’ individual communities one by one. This establishes a pattern in which social projectsbecome a way of fire-fighting grievances rather than addressing long-term needs (see FlashpointIssue 1: Stakeholder Engagement).

The strategy design, therefore, needs to be participatory, using the methodolgies described above,with a strong component of shared decision-making. It also must be comprehensive, encompassinglong-term needs across a broad spectrum of stakeholders, and taking into account a thoroughunderstanding of the context in order to ensure proposed social investment projects or othermitigation measures do not feed or create divisions. It requires strong partnerships with othercompanies, local and national government, NGOs and the wider international community (seebelow). Designing mitigation and management strategies needs to evolve iteratively and be informedby the ongoing analysis elements of P-CRIA.


As presented in the Introduction and in M-CRIA, CSBP requires ‘mitigation’ of conflict riskthrough compliance with national and international laws and standards; adopting a ‘do no harm’approach to company/conflict impact; and going beyond this to contribute to ‘peacebuilding’.Peacebuilding encompasses a range of initiatives (see figure 6) many of which fall within a company’smandate and areas of expertise, others (particularly the more political dimensions) that fall outsidethem.5 Assisting a society to move from violence towards peace requires a variety of interventionsby a number of different local and international actors.

Figure 6: The ‘peacebuilding palette’6

At first sight, the concept of peacebuilding can appear to be beyond companies’ legitimateactivities as private-sector entities and, as a result, companies to date have not fully acknowledgedthat they have an important role to play beyond the provision of revenue and jobs. To play thisrole means taking a comprehensive and holistic approach to the short and long-term challengesfacing societies engaged in, emerging from or threatened by conflict, and contributing theircompetencies toward their alleviation. To maximise the contribution requires working in partnershipwith others as presented in box 12:

Box 12: Partners for conflict-risk mitigation and peacebuilding

Government. States (or state-owned enterprises) are the primary partners in most extractiveindustry projects. Entering into agreements with governments means that a company’s reputationis inextricably bound up with the actions of its partner. In other words, abuse, corruption andrepression by government inevitably rebounds on the company by virtue of its partnership. Thisemphasises the importance of writing key agreements into contracts (e.g. transparency in revenuepayments, Voluntary Principles on Human Rights and Security, percentage of revenue accruing




Peacebuilding





justice system)


5. Banfield, J. et al. (2003) Transnational Corporations in Conflict Prone Zones: Public Policy Responses and a Framework forAction ( London: International Alert); Nelson, J. (2000) The Business of Peace: The Private Sector as a Partner in Conflict Prevention and Resolution (London: International Alert, International Business Leaders Forum and Council on Economic Priorities); Wenger, A. and D. Möckli, Conflict Prevention: The Untapped Potential of the Business Sector (Boulder: Lynne Rienner).

6. Smith, D. et. al. (2004) Towards a Strategic Framework for Peacebuilding: Getting their Act Together (Oslo: Norwegian Ministryof Foreign Affairs).

Box 12 (continued)

to project region). In itself this will go some way towards avoiding the main sources of grievanceand conflict precipitated by extractive industry investments. Beyond contracts, companies shouldlobby and dialogue with governments to use revenues equitably, working with them to promotean enabling environment for business and exerting pressure to reduce corruption and hold toaccount those responsible for human rights abuses. In terms of state-owned enterprises, capacitybuilding should go beyond technical and financial expertise to include the incorporation andmainstreaming of sound ethical principles. Companies should also work to build the capacity oflocal government to deliver services to communities by designing social investment projects thatcomplement and strengthen government, rather than eclipse it (see Flashpoint Issue 5: SocialInvestment).

Companies. Collective action by multinationals is critical to exerting a positive influence.Acting alone is both risky and less likely to prove successful. However, while companies oftenneed to work together to develop natural resources, they are more reluctant to collaborateon development projects or lobbying government. This is partly because the extractive industryis far from homogenous in its approaches, but is also due to individual companies’ efforts to createbrand identity. The use of ethical and social policies as part of a marketing strategy has little orno relevance in countries threatened by conflict. Worse, it actively obstructs important initiativesfrom being pursued and leads to duplication and reduced impact. Harnessing the collective influence,financial resources and expertise of companies could make a significant contribution towardspromoting equitable political and socio-economic development.

International community. Different international actors are useful partners for companies inthat they bring different skills and competencies to addressing shared issues of concern.Companies can pool their skills and activities with donor governments to address human rightsand corruption; with development agencies and INGOs on service provision and capacity buildingprojects; and with IFIs to promote good practice in transparency and revenue management.

Local NGOs. Credible NGOs working on issues relevant to the P-CRIA analysis will have alreadyemerged through the process. Partnering with local NGOs enables companies to develop relevantand targeted projects and has the added benefit of supporting the capacity of local civil society.

Local business. Strengthening the capacity and productivity of local entrepreneurs throughskills transfer and partnership can also reinforce initiatives to promote peace, helping to reducethe risks of ‘Dutch Disease’. Companies will have a shared interest in lobbying for stable andenabling operating environments with their local counterparts.

5.2 Structuring participatory mitigation designAs discussed in the Introduction and M-CRIA, mitigation measures can be divided into threecategories of business activity: core business, social investment and policy dialogue. Core businessrelates to activities that are in the immediate sphere of a company’s operations, including locationof investment, employment of staff, security arrangements, production activities, etc. There aremany ways a company can contribute positively through the management of its own operationsboth to minimise negative impacts, but also to address broader structural issues and contributeto peace. Social investment captures the wider projects and stakeholder relationships that companies


engage in as one means of managing the local environment. Companies conventionally use socialinvestment as a tool to build relationships with stakeholders. However, care has to be taken toensure that social investment projects do not create parallel structures of service provision thatundermine the accountability of governments to their electorate. Institutional strengthening oflegitimate government structures should be considered as a key component of mitigation strategies(see box 13). Policy dialogue refers to the engagement that companies have, and the influencethey can exert, over or in tandem with national and local governments, industry associations andinternational agencies. These interventions are usefully understood using the ‘control’/‘assist andinfluence’ framework presented in M-CRIA.

Box 13: Institution building

Corrupt or weak local government poses problems for companies wanting to channel socialinvestment through the state. Developing direct funding relations with civil society or developmentagencies may present short-term efficiency gains, but in the long run it creates a situation in whichcommunities will look to the company to provide for social development, rather than the government.

Institutional strengthening of legitimate state structures can take different forms:

• Local government partnerships to build revenue management capacity, for instance,through work-exchange programmes between finance staff

• Transparency in payments and revenue-sharing arrangements to enable watchdogorganisations to track financial flows

• Engaging government in participatory planning processes and ensuring that socialinvestment programmes fit within the state’s regional development plans.

Ideas about the kinds of mitigating initiatives and steps that could be taken across the three areasof business to address stakeholder concerns relating to the context itself and the project impactswill already have been gleaned during the participatory research process of Step 2. Building onthese, the P-CRIA team should now make an initial chart of conflict-risk issues, project impactsand proposed mitigation actions across the different business areas. Table 1 gives a partial sampleof what this chart could look like, based on a fictional country context. The document should thenbe brought back to key stakeholders in small focus groups to further develop ideas and createsupport and buy-in for the emergent strategy.



IMPACT CATEGORY

PRIMARY ANDSECONDARY (PROJECT)

INDIRECT(CONTEXT)

ACTION

Project land-use.

Pollution/environmentaldamage.

Securityarrangements for project.

Revenue to government.

IMPACT

Resettlement ofcommunities.

Destruction of farmland.

Water in rivers/lakesmade unfit for use.

Recruitment of locals.

Influx of state securityforces.

Perceived inadequateshare of revenue to thelocality increasesalienation.

IMPACTEDSTAKEHOLDERS

Those living on landrequired for project.

Armed groups.

Those living on or frompolluted land/rivers.

Those living around/nearproject.

Armed groups.

Potentially all withinlocality.

Local government.

Table 1: P-CRIA summary table – example


POSSIBLE SECONDARYIMPACTS

Relations between relocatedand host communities.

Influx of cash into subsistenceeconomy.

Compensated individualsbecome target for extortion.

Oil spills.

Air pollution.

River life affected downstreamfrom project.

Fences and wallsalienate local communities.

Abuse by security personnel.

Employment of state securityforces increases fear withincommunity.

Availability of weapons.

Corruption increases.

Gap in living standardsincreases.

Government neglectexacerbates under-development.

ADDITONAL IMPACTEDSTAKEHOLDERS

Those affected by relocatedcommunities.

Potentially all communitieswithin locality (and beyond).

Towns/villages frequented bysecurity personnel.

Indirect impacts can befelt more widely than anygeographic boundary.

RISK LEVEL/IMPACT ONCOMPANY

Red.

Potential for tension betweencompany and resettledcommunities, and withinlocal communities.

Red.

Failure to mitigate andmanage environmentalimpacts can lead to conflict.

Red.

Disproportionate responses todemonstrations etc can triggerand inflame violence.

Red.

Company blamed for the lackof benefits accruing to localcommunities.

MITIGATION MEASURE

CB: Good practice inresettlement/compensationprocesses (see FlashpointIssues 1 and 2).SI: Appropriate developmentprojects to provide alternativelivelihoods for relocated andhost communities.PD: Engage with localgovernment to provide basicservices.

CB: Stringent environmentalstandards.SI: Alternative livelihoodprojects/health projects.PD: Lobby local governmenton its own environmentalstandards and for provisionof health clinics, hospitals.

CB: Appropriate training forsecurity personnel –adherence to VoluntaryPrinciples and IHL.SI: Support for communityinitiatives which addressprevalence of weapons/crime/feelings of insecurity.PD: Lobby local governmentto train and manage statesecurity forces/tackle crime.

CB: Transparency on revenuepayments/anti-corruption.SI: Support to civil societyto monitor governmentexpenditure.PD: Lobby government toensure equitable distributionof revenue/include revenueshare for locality in contracts.

CB: core businessSI: social investmentPD: policy dialogue


IMPACT CATEGORY

INDIRECT(CONTEXT)

ACTION

Project dominates localeconomy.

Government dependencyon project.

IMPACT

Distortion of traditionaleconomic structure.

Neglect of existingindustries/livelihoods.

Increased securitypresence.

Clampdown on dissent.

Greater incentive forgovernment to remain inpower.

IMPACTEDSTAKEHOLDERS

All within locality.

All within locality.

Table 1 (continued)


POSSIBLE SECONDARYIMPACTS

Unemployment.

Competition for employmentwith company.

Inflation.

Project becomes a magnet forpeople from other regions.

Higher levels of human rightsabuses.

Restrictions on freedom ofspeech.

Increase in detentions.

Electoral fraud.

ADDITONAL IMPACTEDSTAKEHOLDERS

Neighbouring localitiesdrained of productive labour.

Country-wide.

RISK LEVEL/IMPACT ONCOMPANY

Red.

Intensified demand for jobs.

Red.

Company associated withincreasingly repressiveregime.

MITIGATION MEASURE

CB: Transparency inrecruitment policies/processes and procurementfrom local suppliers.Contractors followcompany guidelines/principles.SI: Micro-finance projects/skills training and education.Support for economicdiversification.PD: Lobby government to:support existing industriesand livelihoods/createappropriate businessclimate/tackle corruption/invest in education.

CB: Promote own businessprinciples internally andto contractors/ suppliers,including state partners.Encourage company staffto monitor elections.SI: Support local andinternational NGOs workingon civil rights and humanrights monitoring. Promotedemocratisation initiativesPD: Send clear signal tothe local authorities onhuman rights standards.Work with internationalcommunity.

6. Step 4: Mainstreaming throughout the project cycleP-CRIA is composed of a number of steps a company can take to ensure it operates in aconflict-sensitive manner. As this document has emphasised throughout, P-CRIA is an iterativeprocess that, in addition to providing a regularly updated assessment of company/context interactionsand impact, is designed to become a modus operandi for companies investing in countries at riskof conflict. The key to the approach is the recognition of the value of full stakeholder engagement.Since the project itself will change over time, either in terms of its parameters or in respect of itsphases of development, the process used by the company must be flexible enough to accommodateaccompanying changes in its interactions with stakeholders. This flexibility means working at apace with which stakeholders are comfortable. It also means openness to project re-design,acceptance and understanding of stakeholder perspectives, and recognition of the need to beconstantly engaged in participatory and validating research and dialogue about project impactsthroughout the project lifecycle. It is this kind of approach to doing business in conflict-risk countrieswhich will ultimately generate a social licence to operate and ensure positive outcomes.

Given its ambitious goals and method, spanning the range of business activities and impacts,P-CRIA will not fulfil its objectives if it is sourced to external relations or community liaisonstaff. As discussed above, the P-CRIA team should be in constant dialogue with, and ultimatelyconsist of, representatives from all key areas of business: geologists, political risk and securitymanagers, staff from external relations, procurement and human resources departments, andmanagement. P-CRIA is at the crux of operationalising CSBP as a whole and requires constantleadership. Staff turnover and limited inter-departmental coherence represent some of thebiggest threats to effective implementation of CSBP as a whole and P-CRIA in particular.

6.1 IndicatorsAn important aspect of the mainstreaming required for successful implementation of P-CRIAis the development of indicators to monitor progress and to ensure that the mitigation strategydoes not have unintended harmful impact. Indicators can be used at three different levels:

Context. P-CRIA is designed for assessing changes and shifts in the context, with particularemphasis on conflict risk, throughout the project cycle. Developing and using ‘context indicators’through the project-level analysis can alert the company to significant changes in the context.Context indicators should reflect the key issues identified in the context analysis and shoulduse a mixture of perception-based (qualitative information based on beliefs, views and feelings)and objective (quantitative information based on more ‘factual’ data). Indicators are inevitablyspecific to the situation but examples might include: poverty levels, instances of violence, increasedinflow of weapons, numbers imprisoned, perceptions of security, etc.

Project. Companies conventionally use project indicators to measure the progress of the projectdevelopment. The emphasis tends to be on quantitative rather than qualitative indicators.The participatory research process of P-CRIA enables the team to discern and develop projectindicators related to stakeholders’ perceptions of the project’s development, which will serveas an important evaluation tool for the project’s success from the CSBP perspective.

Impact. These should be designed to monitor the impacts related to the two-way interactionsbetween context and company that have been identified through the participatory research.They can be developed together with stakeholders during the participatory processes and areparticularly useful for monitoring the efficacy of the mitigation strategy as it unfolds.



Peacebuilding practitioners use a variety of tools to map out and visualise conflict issues inan accessible way. Below are examples of some that may be useful for the steps carried out inP-CRIA. Others are listed in the training and resource manuals cited in Resources.

Dividers and connectors7

The dividers and connectors tool explores factors that divide (maintain the polarisation of thepopulation, such as unequal access to power, language barriers) and factors which connect (maintainbonds between sections of society such as shared harvest, common memories of former peacefulcoexistence) across groups. These are structured into different categories:

• Systems and institutions (e.g. infrastructure and markets)• Attitudes and actions (e.g. adoption of war orphans from other side)• Past and current experiences (e.g. colonial history)• Values and interests (e.g. common religion)• Symbols and festivals (e.g. national commemorative events).

A company’s project can be reviewed by the P-CRIA team, with other staff, or collectively withstakeholders in order to establish whether it will increase or decrease the dividers and connectorsin society.

7. Anderson, M. (1999) Do No Harm: How Aid Can Support Peace – or War (Colorado: Lynne Rienner Publishers)

Annex


Timelines8

Timelines help clarify local conflict history, highlighting different perceptions or understandingsof events. The tool invites the user to show significant historical events in chronological order.By keeping the timeline down the centre of the page or flipchart they enable different perceptionsof history to be shown side-by-side. Shared analysis of these different perceptions can help usersto understand the significance of key points in history and facilitated discussion of timelines canhelp build consensus and solidarity. One variation of the timeline is used in the Northern Irelandmuseum where a shared timeline splits at a significant point in the conflict, with two separateversions of history subsequently shown on facing walls. The timeline tool can be used by companiesas context analysis, or to help resolve community/company conflict.

8. Adapted from Responding to Conflict (2000) Working with Conflict: Skills and Strategies for Action (London Zed Books).

1995

1996

1998

1999

2000

Government forces evictlocal communitiesfrom concession area

In-migration by jobless hoping to getemployment at company. Tensions between

community ‘insiders’ and ‘outsiders’

Community feels marginalised in processof construction, mistrust rises against

company and ‘foreign’ workers

Communities see trade opportunities atconstruction site, become frustrated

Tensions arise between different factions in thelocal community to control social investment

resources

Local communities negatively affected byattacks, increasing opposition to the investment

Military begins to indiscriminately target localcommunities in an effort to uproot rebellion

Violent protests around the companysite against indiscriminate attacks

Events as viewed by local community

Beginning of negotiations with the government,successful bidding for concessions

Exploration begins. Problems with internationalmedia also begin

Successful establishment of workers’ campsand bringing in of workers for construction

Company obtains catering and servicesfrom ‘safe’ sources abroad

Production begins and together with itsocial investment. International advocacy campaignlaunched against company

Rebels begin to target company infrastructure

Military moves in to provide securityaround the company site

Shareholder meeting hi-jacked by lobbyists

Company has to shut down operations

Events as viewed by company


The problem tree9

Problem trees seek to unravel cause and effect relationships of multiple factors in a complexsituation. People draw a tree, where the roots represent the root causes/structural factors of theproblem (e.g. poverty, ethnic prejudice, corruption). The trunk represents the name and nature ofthe problem (this may be the converged expression of many different roots, e.g. tensions betweenfishing community and pastoralists) and the leaves or branches are manifestations/effects ofproblems (e.g. conflicts between ex-combatants and host communities, land disputes of returningrefugees). This joint conflict analysis helps to clarify the difference between manifestations of aconflict(s) and their root causes. Again this tool can help the company understand issues andstakeholders in the context or could be used to address company/community conflict.

Causes

Core problem

Effects

Landalienation

Fear

Raiding Looting

Unfairrepresentation

Hatred/suspicion

Killing

Law

Currentconstituencies

Colonialboundaries

Freedom /equity

Unequaldevelopment

Corrupt politicalleaders



The peace flower10

The peace flower, representing the inverse of the problem tree, can be used to understandwhat factors contribute to peace or conflict prevention in a particular society. The componentsof the flower include its name (peace issue, e.g. good company/community relations), its roots(systemic support, e.g. access to resources), its stem (processes in place, e.g. strong communitystructures) and petals (on-going peace efforts). Again this tool can help the company to understandissues and stakeholders in the context or could be used to address company/community conflict.

Stro

ng lo

cal c

omm

unity

str

uctu

res

Goodcompany/

communityrelations

Peac

e ef

fort

s/in

itiat

ives

Peace efforts/

initiatives

Peac

e ef

fort

s/

initi

ative

s

Open lines ofcommunicationbetween companyand community

10. Adapted from WANEP/FEWER.

Decentralisation Access toresources

Accountable local officials

Social investment

is agreed in consultation

with local communities


The pillars tool11

The pillars tool can help to focus users, including the P-CRIA team, on the factors or forces thatsustain violence or tensions. Having identified these ‘pillars’, users consider how to weaken orremove them, and replace them with pillars that strengthen stability.

Conflict betweencentral government and

local community overnatural resource

exploitation

Corr

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insi

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ccou

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loca

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acili

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acc

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ntra

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Lack

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nsul

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ith

prof

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med

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expe

rienc

e, g

et

them

eng

aged

Lack of access to resources at the local level: address

latent conflict issues through social investment

Violent crackdown by governm

ent forces on local

protests: offer human rights training to security

forces in the area, beyond company site

No benefits accrue to local comm

unity

from resource exploitation: engage

in policy dialogue with the

government, e.g. to

create a regional

development fund


Resources

Environmental and Social Impact AssessmentsGoldwyn, R. and J. Switzer (2004) ‘Assessments, Communitiesand Peace: A Critique of Extractive Sector Assessment Toolsfrom a Conflict-Sensitive Perspective’, in Oil, Gas and EnergyLaw Intelligence (OGEL), vol.2 issue 4. www.gasandoil.com/ogel/

Moser, T. and D. Miller (1997) ‘Multinational Corporations’ Impactson the Environment and Communities in the Developing World:A Synthesis of the Contemporary Debate’, in GreenerManagement International, issue 19.

Jones, M. G., J. J.Hartog, R. M.Sykes (1996) Social ImpactAssessment – New Dimensions in Project Planning (Societyfor Petroleum Engineers, Inc.).

International Association for Impact Assessment (2002)‘Impact Assessment, Sound Business Operation, and CorporateResponsibility for Sustainable Development’, in ImpactAssessment in the Corporate Context, Business and IndustrySeries no.1. www.iaia.org

International Association for Impact Assessment (2003)‘International Principles for Social Impact Assessment’in Special Publications Series no.2. www.iaia.org

UNEP (2002) Environmental Impact Assessment TrainingResource Manual, second edition (UNEP), including sectionson social impact assessment.www.unep.ch/etu/publications/EIAMan_2edition_toc.htm

Petts, J. (ed.) (1999) Handbook of Environmental ImpactAssessment (London: Blackwell Science).

Vanclay, F. (2002) ‘Conceptualising Social Impacts’in Environmental Impact Assessment Review, 22.

World Bank and IFC, Environmental and Social SafeguardProcedures. www.worldbank.org, www.ifc.org

Conflict analysis and impact assessment tools fromthe development and humanitarian aid sectorsAfrican Peace Forum, Consortium of Humanitarian Agencies,FEWER, International Alert and Saferworld (2004).Conflict Sensitive Approaches to Development, HumanitarianAssistance and Peacebuilding – a Resource Pack.www.conflictsensitivity.org/

Bush, K. (2003) Hands-On Peace and Conflict Impact AssessmentHandbook.www.swisspeace.org/koff/uploads/nl/tools/HandsOnPCIA-Handbook0X-Part-I.pdf" \t "_blank Vol l andwww.swisspeace.org/koff/uploads/nl/tools/HandsOnPCIA-Handbook0X-Part-II.pdf" \t "_blank Vol II, available fromwww.swisspeace.org/koff/t_tools_pcia.htm

CARE International Benefits/Harms Handbook.www.careusa.org/getinvolved/advocacy/policypapers/handbook.pdf

Collaborative for Development Action Inc. Do No Harm/Local Capacities for Peace Project. www.cdainc.com/dnh/

Paffenholz, T. and L. Reychler (2005) Aid For Peace:A Guide to Planning and Assessment for Conflict Zones,(Boulder: Lynne Rienner).www.swisspeace.org/koff/uploads/website/WorkingInConflictZones.pdf

Specialist assessment toolsConfederation of Danish Industries, DanishInstitute for Human Rights, and IndustrializationFund for Developing Countries, Human Rights and BusinessProject Human Rights Compliance Assessment.www.humanrightsbusiness.org/compliance_assessment.htm

Schmeidl, S. and E. Piza-Lopez (2002)Gender and Conflict Early Warning: A Framework for Action(London, UK: International Alert and Swisspeace).www.internationalalert.org/women/publications/EWGEN.PDF

Training and resources on conflict analysisand conflict transformationAfrican Centre for the Constructive Resolution of Disputes(ACCORD) Introduction to Conflict Management, MediationTraining 3-day courses, based in South Africa.www.accord.org.za/web/home.htm

Centre for Peacebuilding and Conflict Management BasicConflict Management Skills, 3-5 day courses. www.ccm.no/

Creative Associates International A Toolbox to Respond toConflicts and Build Peace. www.caii.com/

Eastern Mennonite University Summer Peacebuilding Institute4-week training. www.emu.edu/ctp/spi.html

International Alert Resource Pack for Conflict Transformation.www.international-alert.org/publications.htm

Network University Transforming Civil Conflict,4-week online certificate course. www.netuni.nl

Responding to Conflict (RTC) Strengthening Policyand Practice, 1-week training course; Working with Conflict,10-week training course; Confict Resolution Skills, 2-weekpost-graduate certificate. www.respond.org/

Transcend Peacebuilding, Conflict Transformation and Post-War Rebuilding, Reconciliation and Resolution, 5-day trainingcourse. www.transcend.org/

UN Developing Capacity for Conflict Analysis and Early Response,training manual.www.unpan1.un.org/intradoc/groups/public/documents/un/unpan011117.pdf

University of Waterloo Certificate Programme in ConflictManagement, courses of varying length and topics.www.grebel.uwaterloo.ca/



Local sourcesNewspapersCivil society reports and studiesAcademic papersLocal think tanks and research-institute papersInterviews

Section 4

Flashpoint Issue 1Stakeholder Engagement

Flashpoint Issue 1Stakeholder Engagement

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 1: Stakeholder Engagement

The issueCompanies have experienced a steep – and shifting - learning curve in their approach to stakeholderengagement. Many recognise that obtaining a ‘social licence to operate’ is essential to successfulbusiness operations from the outset. Without a direct, continuing relationship, communities inunderdeveloped countries view companies as foreign, wealthy entities that are ready targets forthe extraction of financial benefits, or venting grievances, sometimes through violence.

Most companies channel their interactions with host communities through social investment orcommunity relations programmes despite the reality that all other areas of business activity(compensation policies, hiring policies, construction) are equally, if not more important in establishingthe terms in which communities view a company’s impact on their lives. The distribution ofemployment opportunities and other benefits from a project, and decisions about other majorimpacts, particularly on the environment, require community support in order to avoid conflict.Stakeholder engagement is a vital tool through which informed strategies can be developed.To understand potential or existing conflicts, and design effective risk mitigation across the rangeof a company’s activities, effective, respectful, regular and transparent engagement processesare essential.

Companies most frequently use two processes in working with stakeholders: consultation andnegotiation. Negotiation is a process of meetings deliberately convened to reach agreement on aparticular issue. A consultation process is a more open-ended set of conversations or meetings,with the objective of exchanging ideas and opinions (without necessarily coming to a formalagreement). Consultations precede formal, issue-focused negotiations and the same individualsusually participate. The degree of credibility, transparency and trust established during theconsultation directly impacts the effectiveness of negotiations with stakeholders. Both processesneed to be considered in light of their potential to fuel or mitigate tensions, misunderstandingsand conflict.

The business caseCompanies have long sought good relations with national and local governments. Increasinglythey have discovered that harmonious relations with a range of other stakeholders, such ascommunities affected by the project, local, national and international advocacy NGOs, anddevelopment actors, also pay dividends. Such relationships can help provide companies withaccurate information and context analysis, as well as professional and experienced partnersfor social investment and development projects. In the absence of such relationships, mistrustcan grow, increasing the likelihood that conflict will arise between companies and communities.This, in turn, can impose both direct operational costs and indirect reputational costs, as advocacynetworks turn hostile to a project or investment as a result of community grievances. Workstoppages, local violence, widespread political unrest and the potential for legal or reputationaldamage can result from poor stakeholder-engagement practice. As companies begin to recognisethis, competitive bidding gains can be won from tackling stakeholder engagement pro-activelyand building good relationships across the spectrum of social actors from an early stage.

Standard assumptions and responsesSome companies have managed to establish excellent relationships with the stakeholders withwhom they work, but others - the majority – have been less successful. This is because of underlyingincorrect assumptions:

1. This paper is an adapted version of work published by the Collaborative for Development Action, Corporate Engagement Project.It focuses on project-level stakeholders. Collaborative for Development Action, 130 Prospect Street, Suite 202, Cambridge,MA 02139, USA. Tel: 1 617 661 6310, Fax: 1 617 661 3805. www.cdainc.com/cep

1


Negotiation or consultation results in having to pay more cash or other monetary rewards.This assumption leads to negotiation avoidance, which can result in escalated frustration amongcommunities, acts of violence, lawsuits, work stoppages or increased demands, all of whichare more costly and time-consuming than the consultation and negotiation procedures.

Companies postpone consultations because they want first to come up with answers to thequestions they expect will be raised. The experience of others suggests that consultation processesoften generate creative ideas for dealing with issues for which management has not yet foundsolutions.

Negotiation or consultation delays implementation. On the contrary, a well-designed and ongoingconsultation process increases public ownership, reducing the risk of delays from complaints,obstruction or sabotage.

Engagement, specifically in negotiation, should be limited to a small number of groups orrepresentatives. This assumption prioritises negotiations with the most powerful in the community,those who are potentially most obstructive of company operations, or others whose influence canbe used to convince community members to support a positive outcome. In reality, working witha small group of people can mean that other groups feel left out and do not respect the outcomeof the negotiation. It can also exacerbate existing power imbalances unduly.

Engagement is a means of achieving a specific position or outcome, rather than an open processaimed at meeting stakeholders’ needs, as well as a company’s own. But communities say thatthey value discussions around non-monetary intangibles such as ‘trust’ or ‘empowerment’, ratherthan a focus on financial compensation or tangible settlements.

Control of the interaction with stakeholders is more important than the process. The idea thatengagement should be approached with a fixed agenda and a strategy for achieving set goals limitsthe space available to make engagement a two-way process that is mutually satisfactory.

By focusing on ‘winning’ and ‘outcomes’, companies can overlook the importance of the processof interaction, and fail to identify and subsequently address the root causes that created the needfor engagement in the first place. Where root causes are not addressed, communities will continueto bring them to the company’s attention.

Key conflict issuesFlawed engagement processes directly increase the likelihood of conflict in the following ways:

Negative reinforcement. When companies respond only to acts of obstruction, work shutdowns,vandalism or violence, stakeholders experience ‘negative reinforcement’ which encourages themto engage in negative activities they might otherwise not have chosen. If a company responds onlyto negative or obstructive triggers, those triggers are certain to occur. Communities consultedover this issue say they wish to engage with the company on a regular and constructive basis,but that this non-obstructive approach tends to yield less results.2

2. CDA research, op. cit.


Responding to those who display negative authority. Responding or consulting only with armedgroups, or those who articulate threats of violence, kidnap staff or destroy company property,empowers and legitimises such actions. It also overlooks the potential of positive actors whorepresent broader interests and can bring together community members, such as women’s groups,religious circles, community organisations and educational institutions. Beyond the company’simmediate relations, such a response reinforces the conflict drivers in society at large, increasingthe risk of long-term instability and its associated costs to the operating environment.

Partner selection reinforces local tensions. Companies naturally find it easier to interact withsomeone who comes to their office, speaks their language, knows the local laws and customs,and is formally educated. However, individuals who most readily present themselves, and lookand sound most like company staff, can be ‘elites’, who may or may not represent the widercommunity. By supporting elites as negotiators, the company risks a dynamic in which the elitepositions him or herself between the company and the community for personal gain, to the detrimentof both. By supporting individuals over groups, companies undermine cohesion in the greatercommunity.

Reactive engagement. Many companies wait to engage with communities until they are compelledto respond to a problem, or until specific issues arise that affect their ability to operate. They arereactive to problems, rather than pro-active in establishing effective relationships with communities.Allowing problems to grow in this way has knock-on effects: as companies become tainted by theirnegative impacts on communities, the reputational risk of working with them becomes too greatfor NGOs, for instance, and companies, as a result, forfeit the expertise and knowledge they canbring as intermediaries or partners.

Options and alternativesThere is a body of good practice and innovative approaches that seeks to promote more evenand predictable relationships between companies and stakeholders. Identifying and workingwith different primary, secondary and indirect stakeholders is at the core of conflict-sensitivebusiness practice (CSBP) and plays an important function in understanding and mitigating conflictrisk at both national and local levels (see M-CRIA and P-CRIA). Following are some basicrecommended steps:

1. Pro-active approach. Reversing the pattern of reactive engagement, companies should beginengaging early with communities and other stakeholders, even before exploratory operationscommence. Some begin the process as early as one-and-a-half to two years prior to exploration.By recognising a community’s right to be concerned about the changes a large-scale project willinevitably bring to their lives and landscape, companies send an implicit message that they considerit a partner, rather than that the community will have to fight for a stake in the relationship.

2. Commitment to the process. Companies are beginning to take commitment to the process moreseriously once it has begun. Engagement with stakeholders should not be undertaken merely tomeet external requirements (as part of an environmental and social impact analysis, for example).Under pressure to show tangible results some companies focus on achieving specific outcomesin an interaction, rather than giving attention to the process of building a mutually beneficialrelationship which should take precedence over the actual contents of the consultation. Manycommunities express the view that they find companies ‘unpredictable’. This is mainly due to their


limited access to information, with the effect that company decisions seem to have been madesuddenly even when they have been planned for a long time. To avoid this, one method is to clarifyprecisely what the next steps will be at the end of any negotiation or dialogue, and who is responsiblefor the plan. When communities gain the impression that companies follow through consistentlyon what they have promised, the predictability enhances the sense of trust even when the actionitself may be viewed negatively. Full documentation of occasions when the company ‘kept itspromises’, or when ‘high expectations led to disappointing results’ can be a useful tool in correcting‘selective’ memories.

A promise registerCommunities will seek to understand the impact and significance, as well as the potential risksand benefits associated with an investment in their local area from the very first encounter withexploration geologists. Exaggerated or unfounded promises of ‘jobs for everyone’ and other richesby different company staff will fuel speculation, and are likely to lead to disappointment andgrievance. Companies should seek to control such interactions by creating formal mechanismsfor monitoring them and requiring staff to be accountable. Promises should not be made unlessas part of the community relations strategy – and even then should be posted in one place that istransparently available. If early promises of jobs are likely not to be met, this should be communicatedand discussed with affected communities.

3. Interaction must be carried out with an understanding of why it is being done and how it is likelyto affect the project. Consultations can be informal (through discussions in the local tea shop orwith local elders), formal (through workshops, public hearings, negotiations), or a combination ofthe two. Different strategies must be developed for different stakeholders. For the most directlyaffected stakeholders, face-to-face meetings are most appropriate, while open houses, publicforums and documentation suits the needs of those less directly impacted. Companies andcommunities have implicit expectations of each other. Making expectations explicit allows eachto hold the other accountable and keeps expectations realistic. A formal communication protocolcan help when conflict issues arise. This should include a list of who to contact, when, throughwhom, by whom and so on.

4. Inclusive approach. In many countries, engagement with certain groups is politically or culturallysensitive. It is important to avoid reinforcing local tensions and to reach out as widely as possibleto target affected stakeholders. In cases where the authorities do not allow communities to organise,companies have found ways to engage by:

• Negotiating with the government for the establishment of an elected village communicationcommittee. The purpose of the committee is to discuss company/community affairs,such as social programmes. The condition is that the committee should not be involvedin politics.

• Suggestion boxes. These work in some contexts, but not in others. The company mustensure that villagers know who empties the boxes and reads the messages.

• Hiring (preferably female) staff to conduct regular home visits to consult with women,collect statistics and disseminate information.

• Working through independent NGOs or foundations. They usually have more space toengage informally with stakeholders in areas where group gatherings are difficult.

• Follow-through on written and verbal commitments.


5. Reward peace rather than violence. Some companies accept violence and disturbance as partof their operating environment, but it is easier (and cheaper) to work in an atmosphere of trustthan one of violence. Strategies that ‘reward peace’ include investing in communities that arepeaceful, rather than focusing on more disruptive ones; celebrating success when milestonesare achieved; and inviting stakeholders to share in building a sense of ownership over a project.In the interests of longer-term contributions to peace and stability, companies could think creativelyabout using their convening power and the engagement process to foster peaceful relationsbetween different stakeholders in the region, rather than contributing to increased competition.Building on the elements in society that connect individuals across their differences, ratherthan reinforcing them, is more effective for companies in the long term.

6. Transparency. Transparency about the most basic details of company policies, decisions, plansand schedules demonstrates a willingness to share. Companies can supply information abouthiring practices, the selection process for community relations projects, progress on companyoperations and long-term strategies. Transparency dispels misperception and rumour, and helpsto identify issues that may be of concern to community members before they grow into grievances.Companies can use the following approaches:

• Booklets, video and audio that explain in simple language and colourful pictures theoperational process

• Bulletin boards that explain hiring and tender procedures• A public information office in a nearby village where anybody can make enquiries about

company operations• Visits to each community in the operating area, and use of video and other media to

demonstrate what operations will look like when complete• A to-scale model of what the site will look like after closure and environmental repair.

It is important that a company presents stakeholders with consistent arguments. Differentdepartments have different mandates, objectives and timelines which can be challenging whentrying to interact with communities as a team. Without a unified vision based on stakeholder inputand company interest, these internal differences may work against each another, leading tofrustrated staff and dissatisfied communities.

7. Get the right person for the right job. Ensuring that the staff responsible for stakeholderengagement have a willingness to listen, good understanding of the local context and a long-termcommitment to the job is vital, as communities often complain that interlocutors come and go, orthey do not find staff accessible or trustworthy. Companies are increasingly working with trustedthird parties, such as NGOs or development agencies, to perform their communications orconsultation work. In addition, international companies should realise that stakeholders also existinside the front gate, as well as beyond it. There are opportunities to improve communication withlocal staff that can also serve to improve relations between the company and the larger community.


Resources

Voluntary standardsAA1000 Voluntary Process Standard for StakeholderEngagement. www.accountability.org.uk/

WebsitesCollaborative for Development Action,Corporate Engagement Project. www.cdainc.com/cep/

Institute of Development Studies, participation home page.www.ids.ac.uk/ids/particip/

Mining, Minerals and Sustainable Development (MMSD),stakeholder engagement.www.iied.org/mmsd/global_act/stakeh.html

UN Global Compact.www.unglobalcompact.org

Other resourcesAccountability, Stakeholder Research Associates Canada andUNEP (2005) Manual for Effective Building StakeholderEngagement (Paris: UNEP).

Business for Social Responsibility,Stakeholder Engagement Issue Brief.www.bsr.org/CSRResources/IssueBriefDetail.cfm?DocumentID=48813

Clayton, A. et. al. (1998) EmpoweringPeople – A Guide to Participation (New York: UNDP).www.undp.org/cso/resource/documents/empowering/intro.html

Eldis, Participation Resource Guide.www.eldis.org/participation/index.htm

RESOLVE Inc, et al. (2000) Participation, Negotiation and ConflictManagement in Large Dams Projects, Thematic Review V.5,prepared as an input to the World Commission on Dams, CapeTown, South Africa. www.dams.org

World Bank, Participation Source Book.www.worldbank.org/wbi/sourcebook/sbhome.htm

Zillman, D.N. et. al. (2002) Human Rightsin Natural Resource Development: Public Participation in theSustainable Development of Mining and Energy Resources(New York: Oxford University Press).

Section 4

Flashpoint Issue 2Resettlement

Flashpoint Issue 2Resettlement

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 2: Resettlement

The issueAcquisition of land, or rights to land, is a precursor to nearly all extractive industry operations.Where such land is occupied or used by people, or where it forms part of a community’s customaryor traditional resources, acquisition may involve resettlement. Under World Bank criteria, a projectinvolves resettlement where acquisition of land for project purposes, whether temporary orpermanent, results in one or more of the following:

• Relocation of people, or their loss of shelter• People or businesses experience loss of assets (including buildings, land and crops)

or loss of access to assets or resources• People or businesses experience loss or restrictions over income sources or means

of livelihood, whether or not the affected people must move to another location.

A distinction is commonly made between ‘voluntary’ and ‘involuntary’ resettlement. Resettlementis involuntary when it occurs without the informed consent of the displaced persons, or if they givetheir consent without having the power to refuse resettlement. The latter occurs when a state usespowers of eminent domain to acquire land, as is sometimes the case.

The resettlement of people can have far-reaching and serious impacts. As a result of displacement,systems of livelihood are disrupted, and productive assets and income sources lost. Communitystructures and social safety nets are weakened, human security diminished, and there are reductionsin cultural identity, traditional authority and the potential for self-help. Poorly managedresettlement can cause severe, long-term social degradation, impoverishment and increasedvulnerability. Wherever resettlement occurs, there is increased potential for conflict arisingfrom many causes including: disputes over ownership, rights to land or resources; inadequacyof compensation; conflicts between resettled people and their host populations; or as a result ofcorrupt behaviour by implementing officials. In some cases, resettlement can exacerbate or rekindlelongstanding conflicts at regional, tribal, village or neighbourhood level. Clear and publicisedmechanisms for addressing grievances and resolving disputes are a critical part of any resettlementprogramme. Pro-active approaches that involve early assessment of conflict risks, close consultationand engagement with affected people and thorough resettlement planning can greatly reduce thepotential for conflict.

The business caseIdeally, a business wants to operate with the goodwill and trust of the communities that surroundit, or are affected by its operations. In many cases, projects are in remote or isolated locationswhere they are dependent on the goodwill of local communities for access to local roads, labourand the provision of support goods or services. Projects with linear components (e.g. pipelines,transmission lines, materials handling systems) are particularly reliant on good relations withtheir host communities. Conversely, their operations can be vulnerable to disruption shouldgoodwill break down.

Inadequate attention to the impacts of land acquisition and resettlement can cause enduringhardship, resentment and opposition towards a project and its operators. This can contributeto delays in land being vacated for project construction, subsequent construction delays as a resultof protests or ongoing disruptions to operations from blockages or sabotage. It can lead disaffectedcommunities and civil society groups to lobby governments and stymie approvals for operations


expansion or new licences. Such actions are not only harmful to a company’s bottom-line, theyalso increase its exposure to security risks and reputational harm. Under some circumstances,failure to follow good international resettlement practice may be interpreted as ‘forced eviction’and leave a company vulnerable to prosecution under international human rights law.

A clearly defined and documented strategy for resettlement, developed in partnership withaffected people, can assist a project to obtain political backing and faster statutory approvals.A comprehensive resettlement plan is often a pre-requisite for project financing and obtainingpolitical risk guarantees. Other benefits include:

• Fewer delays in acquiring land through avoidance of disputes, litigation or time-consumingeminent domain procedures

• Reduced risk of confrontation with local communities or downtime as a result of communityactions against construction or operations

• Reduced risk of human rights actions against the company• Improved transparency in dealings with affected communities and governments on land

acquisition and compensation matters• Development of host community support and trust (‘social licence to operate’).

Standard assumptions and responsesWhile a few enlightened companies are beginning to adopt more sophisticated strategies for land acquisition and resettlement, many persist in acquiring land in developing countries asthough they were undertaking a similar transaction in their country of origin; that is, throughthe payment of cash compensation to legally recognised landowners, users or affected thirdparties. In many developing countries, unfortunately, poorly developed legislative frameworks,lack of administrative capacity and the absence of developed land markets or regularised systemsof land tenure mean that many displaced people or communities do not receive adequatecompensation to cover their losses or, in the case of informal dwellers, receive no compensationat all.1 Cash compensation alone is seldom adequate to enable people to restore their standardof living and livelihoods once they have been displaced.

Following are some of the common assumptions that companies mistakenly make incontemplating resettlement of people from project-affected lands. They are assumptions thatare contrary to accepted international standards governing resettlement, and could leave acompany open to human rights charges or other costs:

• Resettlement occurs only where there is physical displacement of people• Temporary use of land by a company does not constitute grounds for resettlement• If land is state land, or has been cleared of people by the government prior to handover

to the company, the company has no resettlement obligations• Only people or parties with legally recognised rights to land need be compensated• Cash compensation is usually adequate to cover resettlement impacts• If problems occur, additional compensation payments will usually resolve them• Disclosure of information about how land and assets will be valued will lead to

escalating demands from affected people• Provided a company complies with national laws regarding resettlement, it has met

international standards

1. Informal dwellers are people who may use or occupy land, but who do not have any legally recognised rights to do so. Informal dwellers can include so-called ‘squatters’, traditional or customary users of land such as indigenous people, seasonal fishermen or pastoralists, people who use land on the basis of verbal or informal agreements, people whohave land certificates but who have failed to register their rights, or who have not paid land taxes, and so on.


• A company only needs to comply with national statutory requirements for notificationof affected people about resettlement

• Once compensation has been paid, a company’s resettlement responsibilities are over• Project-affected people who are unhappy with their resettlement arrangements can

always seek recourse through the courts.

Key conflict issuesThis section briefly outlines some of the principal sources of conflict that can result frominvoluntary resettlement.

Not adequately recognising customary or traditional rights to land, particularly thoseof indigenous people. Failure to address traditional or customary rights to land, and to reach afull accommodation with its owners can lead to persistent land claims, or claims that re-emergemany years after the original acquisition. This is particularly, but not exclusively, true of indigenouspeoples, whose customary rules governing ownership, use and transfer can be extremely complex,involve long time-frames and be difficult for outsiders to understand (see Flashpoint Issue 4:Indigenous Peoples). Whether they involve indigenous peoples or other communities, suchclaims can be protracted, involve significant legal and other costs, attract adverse national orinternational publicity and, in some cases, result in substantial settlements or the curtailmentof a company’s operations. Communities experiencing loss of land may also suffer fromdeteriorating health, loss of access to common resources and hunting domain, food insecurity,breakdown of traditional social organisation and belief systems, as well as social marginalisation.

Not recognising the losses of informal land users. In many developing countries, a highproportion of people are informal land users without legally recognised rights to the land theyoccupy. While informal users may not have legal entitlement to compensation, they experiencelosses of housing, assets, income and livelihood when displaced by a project. They may feelaggrieved where their losses are not recognised or compensated. Where people do not haverecourse to legal remedies, they may be forced to explore alternative ways of drawing attentionto their circumstances. These can include resisting resettlement, so that they have to be forciblyremoved. National and international NGOs are increasingly supportive of the rights of informaldwellers and can assist them with legal actions, or by running international campaigns.

Failing adequately to address grievances and complaints. Where individuals feel that theircomplaints or grievances are not being addressed, they not uncommonly initiate escalatingmeasures to get attention. These can include protests or invasions of a company’s offices,blockading work areas or access roads, or other measures to delay construction or haltoperations. Aggrieved individuals can also lobby local politicians or take their cause to NGOs,causing adverse publicity and local opposition towards the company.


Envy of compensation or benefits by those who miss out. Overly generous compensationin the form of high-quality replacement housing or large cash payments can lead to tensionsand envy among those who miss out. Tensions are likely to be directed at the company responsiblefor the relocation and may take the form of escalating demands from surrounding communities,seeking to receive similar benefits. This is one reason why land-for-land solutions are preferableto large cash payments. Compensation should be fair, with perhaps a small premium to encouragewilling sellers. Excessive compensation can also distort market prices for land.

Competition for diminished resources. Where resettlers are relocated within the area ofa host community, they increase competition for communal resources such as grazing, forest,hunting and fishing grounds. This can lead to resource depletion and conflict between the resettlersand their new hosts. Resettlers may also have received improved housing or benefits that are notaccessible to their hosts, creating envy. A well-conceived resettlement programme would recognisethat host communities have to make accommodations for the resettlers and may also experiencesome losses. Offsetting benefits or resources may need to be provided.

Exacerbate existing community differences or disputes. The prospect of compensation or otherbenefits going to some but not all can reignite pre-existing tensions within or between neighbouringvillages, tribes, ethnic groups or long-time residents and newcomers. In some cases, it can causedisputes between older members of a community and its youth who may have differing aspirationsand attachments to a place and its land. A project may become a pretext for the use of militaryforce ostensibly to secure a strategic facility, but more likely serving local political ends. In theseenvironments, there is a high likelihood of human rights violations and the appearance of collusionbetween the company and state security forces.

Lack of transparency in compensation basis and entitlements. Where the basis for compensationand resettlement entitlements is not explicitly defined and disclosed, there is high potentialfor suspicions of favouritism or cronyism to arise between neighbours, villages or tribes. Suchallegations are difficult for a company to counter when no systematic or uniform basis for paymentshas been disclosed.

Residents of a village in Thailand whose land was acquired for a privately funded and operatedpower station had suspicions that there had been irregularities in the way their land was acquired.When they were unable to get satisfactory responses from the project proponents, they lit alarge fire and blocked traffic on a national highway. The blockade made headline news. Subsequently,the government called a halt to the project while land transactions related to the project werethe subject of a ministerial inquiry. The project is yet to be realised, after six years delay.

Corruption and extortion. Where government officials perpetrate acts of corruption or extortion,it can cause extreme frustration for genuine compensation recipients whose receipts may bediminished. In such cases, official channels may not be a feasible avenue for lodging a complaint.Sometimes resettlers will resort to alternatives such as talking to international journalists orseeking the assistance of advocacy NGOs. In some regimes, individuals may have no other optionbut to succumb to extortionate practices and accept partial compensation.


Options and alternativesThe following principles are based on current international good practice for projects thatinvolve involuntary resettlement. Reference should also be made to International Finance Corporation(IFC) Operational Directive 4.30 Involuntary Resettlement which has been widely adopted as thegood practice benchmark for private sector resettlement operations.2 The overriding goal for anyresettlement programme should be that displaced people are assisted to enhance, or at leastto restore, their pre-project living standards, income-earning capacity and production levels.The risk of conflict is much reduced if displaced people experience sensible improvements in theirquality of lives and incomes.

1. Avoid resettlement wherever possible. Because of the inherent risks (to both resettlers andthe company concerned) and the complexities involved in resettlement, it is preferable to avoidresettlement wherever possible through careful site selection, routing studies, consultation andby exploration of the alternative technical and design options.

2. Where unavoidable, minimise resettlement impacts. Every effort should be made to minimisethe footprint of the project to avoid impacts on the houses, productive land, assets and resourcesused by communities. This should include consideration of measures to minimise safety andprotection zones around pipelines and facilities that may restrict landowner’s and users’ activitiesand affect livelihoods.

3. Undertake a thorough socio-economic assessment and social risk analysis to identify andanticipate areas of potential conflict (see M-CRIA and P-CRIA). The assessments identify the typesof impact a project will have on peoples’ land, assets and livelihoods, and provides the basis fordesigning compensation and assistance packages. Assessment should include an analysis ofpotential conflict risks, and identification of primary, secondary and any indirect stakeholdersso that appropriate management approaches and resources can be allocated.

4. Ensure that agreements with the host government specify that land acquisition and resettlementbe conducted in accordance with international standards. Concession and related land agreementsfor major extractive industry projects place the responsibility for land acquisition and resettlementon the host government. The government is responsible for handing over a cleared site to theproject proponent within an agreed timeframe. While ostensibly this alleviates a company fromresponsibility for resettlement issues, it may leave a legacy of resentful displaced people, andvocal criticism from civil society organisations and others. In order that the company has someleverage to ensure that resettlement is conducted well, the project proponent should buildinternational standards into any contractual agreement it signs with the government.

5. Allow sufficient time for land acquisition, resettlement and related consultative processes.A common mistake is to allow insufficient time for undertaking land acquisition and resettlement.A process that involves socio-economic assessment, thorough consultation and the participationof affected people can often take two to three years, particularly for corridor projects affectinglarge numbers of people.

2. At the time of going to print, all the IFC safeguard standards were under review. OP4.30 could be superceded frommid-2005.


6. Pay attention to informal land users: absence of legal title should not be a bar to compensation.Many categories of land user may not have legal title to the land that they use, but will still experienceloss of assets or income as a result of the project. Such people should be compensated for theirlosses. Particular care should be taken to identify fully the land, assets and resources traditionallyused by, or belonging to, indigenous people (see Flashpoint Issue 4: Indigenous People).

7. Consult thoroughly with displaced people and provide opportunities for them to participateand be involved in resettlement planning and implementation. This is an importantconflict-avoidance activity and one that is most often overlooked when schedules are tight.People to be displaced should have opportunities to be directly involved in resettlement planningand in making decisions about their future. Wherever possible, they should be offered choicesand alternatives on where they might resettle, the types of replacement housing provided,livelihood restoration options, and so on. Affected people have the most complete knowledgeof what works best for them, and participation leads to a greater sense of ownership of theresettlement plan. Future host communities should also be consulted and participate inresettlement planning.

8. Prepare a resettlement plan. The resettlement plan is an important document for aligning allthe parties involved in the resettlement process including company, contractors, governmentimplementing agencies and the affected people. In jurisdictions where laws relating to resettlementare undeveloped, the resettlement plan is an important document for demonstrating thatshortcomings in legislation and administrative systems have been addressed, and that affectedpeople’s rights have been fully protected. It should be developed in consultation with differentstakeholders. It is also good practice that an easy-to-understand summary of the resettlementplan is made available to the affected people in their local languages. This ensures that affectedpeople have clear information about their resettlement and entitlements, and gives them anopportunity to comment on any aspects they see as unfair or incomplete.

9. Resettlement programmes should be planned and executed as development programmes.These should be directed towards providing resettlers with sufficient resources and opportunitiesto improve their former living standards and livelihood levels. Cash compensation alone is seldomadequate to enable resettlers to restore their living standards or livelihoods. For rural communities,where suitable land is available, land-for-land compensation is preferable.

10. Provide opportunities for stakeholders to share in project benefits and develop an interestin the company’s ongoing operation. There are many avenues through which the benefits of acompany’s operations can be extended to local communities, such as: training and employmentopportunities; opportunities to supply goods and services; extension of company infrastructureto local villages (use of roads, water supply, transport or medical services); or through supportfor community development initiatives. Design of such interventions should itself be conflict-sensitive (see P-CRIA and Flashpoint Issue 5: Social Investment). Where there is mutual benefitfor company and community, both parties have a vested interest in maintaining good relations andensuring company operations continue unimpeded. Delivering benefits establishes the companyas a good neighbour.


11. Maintain regular consultation and information dissemination throughout resettlementplanning and implementation: keep peoples’ expectations realistic. Misinformation, rumours,misunderstandings or unrealistic expectations arise from time to time during the progress ofa resettlement programme. For example, there may be delays in providing income opportunitiesfor resettlers. Without adequate information and reassurance, shared across a wide range ofaffected people, resettlers can be misled into believing a company is reneging on its promises.

12. Undertake regular monitoring of resettlement implementation and livelihood restoration.Even with the most carefully planned resettlement, unexpected issues and problems arise.Monitoring is one of the most important tools for ensuring that conflict issues are identifiedearly and are promptly addressed. Monitoring should ensure that resettlement entitlementsare delivered in full and on time; that livelihood restoration measures are effective; and grievancesare addressed in an effective and timely manner. Corrective action or changes in the resettlementprogramme may be required where persistent problems are encountered.

13. Establish and publicise avenues for making a complaint or grievance. Stakeholders shouldhave straightforward avenues for making a complaint related to land acquisition, resettlement,the project itself, or its personnel. It is critically important that complaints are recorded andacknowledged, and that appropriate corrective actions are agreed and taken in a timely manner.Failure to adequately acknowledge or address complaints can lead to escalating action and protests.

14. Anticipate corruption and take pro-active measures to minimise its impacts. Becauseresettlement can involve considerable cash compensation transactions, there is always a risk ofcorruption (see Flashpoint Issue 9: Corruption and Transparency). Measures to counter corruptioncan include: disclosing clear information to resettlers about their compensation entitlements andthe basis used for calculating compensation; providing clear documentation of compensationcalculations; making direct transfers to recipients by means of bank accounts to avoid third-partyhandling; widely publicising that compensation payments are to be free of any deductions or taxes;publicising avenues that can be used for making a complaint; providing confidential hotlines; orsupporting a respected NGO’s efforts to monitor payments and complaints.


Resources

International conventions and voluntary standardsEquator Principles. www.equator-principles.com

Geneva Conventions and Additional Protocols I and II.www.genevaconventions.org

International financial institutions, Operational PoliciesAsian Development Bank Involuntary Resettlement Policy .www.adb.org

Inter-American Development Bank Operational Policy onInvoluntary Resettlement. www.iadb.org

International Finance Corporation Operational Directive 4.30Involuntary Resettlement. www.ifc.org

Japan Bank for International Cooperation (JBIC) Guidelinesfor Confirmation of Environmental and Social Considerations.www.jbic.go.jp/english/

OECD Development Assistance Committee (DAC) Guidelineson Aid and Environment, no. 3; and Guidelines for AidAgencies on Involuntary Displacement and Resettlement inDeveloping Countries. www.oecd.org/home/

WebsitesInternational Network on Displacement and Resettlement.www.displacement.net.

World Bank Involuntary Resettlement frequently askedquestions page. lnweb18.worldbank.org/ESSD/sdvext.nsf/65ByDocName/FAQs.

Other resourcesAsian Development Bank (1998) Handbook on Resettlement:A Guide to Good Practice (Manila: Office of Environment andSocial Development, ADB).

Cernea, M. (ed.) (1999) The Economics of InvoluntaryResettlement Questions and Challenges (Washington, D.C:World Bank).

Cernea, M. and C. McDowell (eds.) (2000) Risks andReconstruction: Experiences of Resettlers and Refugees(Washington, D.C.: World Bank).

Downing, T. (2002) ‘Avoiding New Poverty: Mining-InducedDisplacement and Resettlement’, in Mining, Minerals andSustainable Development, April 2002, no. 58.

Feeney, P. (1995) Displacement and the Rights of Women(Oxford: Oxfam).

IFC (2002) Handbook for Preparing a Resettlement ActionPlan (Washington, D.C.: IFC).www.ifc.org/enviro/Publications/

Robinson, W. C. (2003) Risks and Rights: The Causes,Consequences and Challenges of Development-InducedDisplacement (Washington, D.C.: Brookings Institute).

World Bank (2004) Involuntary Resettlement Sourcebook(Washington, D.C.: World Bank). publications.worldbank.org.

Section 4

Flashpoint Issue 3Compensation

Flashpoint Issue 3Compensation

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 3: Compensation

The issueCompanies become involved in compensation issues for a variety of reasons:

• To acquire land and assets• To compensate for the impact or ‘nuisance’ their presence generates• To compensate for accidents (trespass, spills, destruction, casualties).

This paper focuses on the first category.

For many communities, compensation is the only legitimate way to access company resources.In the process of land acquisition and compensation, the stakes are high for both company andcommunity. Land acquisition and ownership have become important conflict factors for two furtherreasons:

• Land ownership determines if a company designates a community as a ‘host’ or givesit a related qualification that signals a ‘special status’. The kind of qualification bestowedis directly linked to beneficiary entitlements, such as employment and contractingopportunities, or community projects.

• Being legitimised by companies as the landowner is important vis-à-vis other communities,especially in areas with a cultural attachment to land.

Companies use a variety of approaches to compensate for the land and assets they wish to acquire.Typically they follow national legislation. In some countries, like Nigeria, all land belongs to thestate and the company is only obliged to compensate for pre-existing buildings and one yield ofharvest. In others, land is privately owned (98 percent of land in Papua New Guinea is held privately).Companies operating there must reach an agreement with each group of owners according towell-specified procedures.

The business caseCompany experience shows that the level (or lack) of protection that landowners or land usersenjoy from government under existing legislation is unrelated to the level of protection theyenjoy from the grievances (or satisfaction) of local stakeholders. Dealing with well-protectedand compensated landowners is no guarantee of a problem-free relationship with land users.However, it is possible to deal with poorly protected land users in a cordial and constructive manner.

The manner in which compensation is made can help a company obtain a social licence tooperate. If a company’s compensation policies and practices are not locally perceived as fair,adequate and satisfactory, this can hinder the development of constructive relations with localstakeholders. This in turn can lead to project delays and the waste of significant managementtime. Associated threats of reputational and/or legal damage are high.

Standard assumptions and responsesCompanies use a variety of policies and procedures to handle compensation. As noted above,they are based on government regulations, though regulations vary greatly in their specificity.

1. This paper is an adapted version of work published by the Collaborative for Development Action, Corporate Engagement Project.Collaborative for Development Action, 130 Prospect Street, Suite 202, Cambridge, MA 02139, USA. Tel: 1 617 661 6310,Fax: 1 617 661 3805. www.cdainc.com/cep

1


Company procedures stipulate:

• To whom compensation should be paid: landowner or land user?• Which social unit is seen as owner: individual, family, community or clan?• For what is compensation paid: land, non-productive assets (e.g. buildings),

productive assets (e.g. crops, trees)?• Level of compensation: is compensation based on one year’s yield of the productive

assets, lifetime economic value, government regulations or other regulations?• Compensation currency: is compensation paid in cash, revenues, land/buildings,

through a trust fund, through other in-kind ‘currency’ such as community projects,employment, contracts or a combination package?

Given the wide variety of terms under which compensation is paid, it is difficult to generalisebut it is still possible to identify some basic assumptions underlying company practice that canbecome, or feed into, conflict issues:

Land and assets can be monetised. The assumption that land and assets can be directlycompensated for in cash, given the right arrangement, does not acknowledge the culturalvalue of land in contexts that stress a critical relationship between people and the land onwhich they live.

Compensation is a finite process. A negative result of this can be demonstrated bycompany/community clashes that are based on divergent views about the value of land.The company claims it can do with the land whatever it wants, while local people perceivethat they can never be alienated from it, and that the land always ‘belongs’ to them.

Compensation is a benefit to local people. This assumption leads to a company expectation thatpeople who are compensated should show gratitude and not be too demanding in requests foremployment, contracts or community services. This tends to be the case where communities havebeen compensated with new houses or other assets of better quality than the original ones. Thisexpectation overlooks the reality that communities often do not associate compensation with abenefit but with loss of land, their previous community structure and other non-tangibles.

Negotiation should aim to pay the lowest compensation possible in persuading others to agreeto a document. This approach, which companies sometimes bring to the negotiations duringcompensation claims – when their land departments are under pressure from the operationsdepartment ‘to deliver’ – has a negative impact on engagement. Communities may feel underpressure to sign an agreement. Companies may obtain a short-term, cost-effective legalsolution but undermine their relationship with communities in the longer term.


Key conflict issuesThere is considerable potential for conflict over compensation claims, usually in the form ofongoing disputes, but sometimes fuelling wider social instability and fragmentation.

Conflicts over ownership and who to compensate. There may be pre-existing conflicts overownership of the land in which the company becomes entangled through its own designs.These can include conflicts between communities and/or local governments over boundaries;conflicts between landowners and land users; conflicts between ‘real’ and ‘hoax’ owners; and,after a company’s arrival on the scene, conflicts between any of these groups and the company.Companies can fuel these tensions in a variety of ways, for example by recognising and compensatingcommunities that host a company facility (such as a well head) to deter assaults on assets.But this community may be different from the one sitting on top of the resource, fuellingconflict over who is entitled to the compensation.

Compensation policies tend to focus on those directly impacted by company operations, suchas landowners or the host village. Companies overlook those outside its operating area who maybe no less impacted indirectly, due to increased costs of living, an influx of jobseekers or increasesin alcohol consumption or prostitution. This can feed inter-group jealousy when groups that areor are not compensated overlap with groups who are already in conflict with one other. Whenland users are not the landowners (as occurs when groups have settled but never officiallyowned the area) owners can evict users from land they may have occupied for generations.

A village in Georgia received compensation for communal pastures and hayfields affected bythe construction of a pipeline. The village leadership determined that the compensation shouldonly be distributed among the original residents, but not more recent settlers who had relocatedthere after a landslide in their original village. The settlers opposed the village leaders’ decisionand took the matter to the district court, which found in their favour. The original residentssubsequently challenged the decision in a higher court. The communal compensation created anacrimonious divide between old and new residents of the village that will take a long time to mend.

Conflict over how ownership is determined. If land ownership is based on official recognitionof a community by the ministry of land, but the maps they use are old and obsolete, thecompany may fail to recognise new communities or settlements. This fuels a concern amongcommunities that they are not being appropriately identified. Some companies require ownersto be physically present on their land when an ownership survey takes place. Despite acompany’s best efforts to announce assessments widely, this allows false owners to claim landand be compensated, leading to conflict when the ‘real’ owners arrive. Some company policiesassume individual land ownership in areas that traditionally have known only communal ownership.Acquiring land from individuals without going through traditional structures gives rise tocommunity distrust and jealousy of the individuals who collect compensation. A non-inclusiveapproach to benefit distribution (individual land owners, host or spearhead communities only)means that groups and individuals have to compete to distinguish themselves. This creates conflictwhere it did not exist before. Rewarding groups based on narrow identities leads to socialfragmentation and increases the number of stakeholders a company has to satisfy.


One company hired an anthropologist to help get its compensation policy ‘right’. The anthropologistreported that there were seven major societal groupings and 23 smaller sub-groups with distinctidentities in the area. To be as responsive as possible to local realities, the company launchedcompensation negotiations with all 23 sub-groups and soon found itself facing a growing numberof sub-sub groupings with further special claims. More and more people demanded compensationpayments and fights broke out between sub-groups. While trying to be as inclusive as possible,the company had focused on the differences between groups, rather than basing its policy onshared interests.

Conflict over the level of compensation. Companies may strictly follow government compensationstandards but these may be outdated and not reflect current values, leading to owners feelingcheated. Companies may apply different standards to different people. For example, if a companyfirst reaches agreement with the ‘easy’ landowners and, under pressure from colleagues inoperations, settles a higher amount of compensation for the ‘difficult’ landowners, this can causeserious grievances among the former, however much they received. It also sets a precedent forcompany/community interaction across a range of associated areas. In other cases, ongoingnegotiations over (relatively small) differences in compensation levels between what ownersrequest and the company is prepared to pay can considerably delay the process of final purchase.Some companies reward their staff for making minimal compensation payments. Such a policycan result in staff ‘cutting corners’ or being non-transparent. Regardless of how reasonable thecompensation, the process of negotiation can become a conflict issue if owners feel pressuredinto agreement. Lastly, compensation policies often only consider the immediate interestsof those directly impacted by company operations (i.e. for loss of crops for one season only) anddo not take into account future losses that a community might suffer. Faced with these losses,communities become hostile from the outset.

Lack of transparency about compensation policies. If there is insufficient transparency aboutthe amount of compensation, who receives it and why, a climate is created in which rumour andjealousy flourish, and this can degenerate into violent inter-group conflict. In some cases, conflictsarise over the anticipated routes for a pipeline and their implications for land use. The transparencyof compensation payments is a related issue. Paying compensation at company headquartersor in locations where the transactional details can be concealed can lead to allegations ofmismanagement or abuse. Community leaders may face scrutiny on returning to their community.Similarly, if claims agents represent the landowners, a lack of transparency about payment detailscan lead to accusations of deal making and similarly backfire on the company.

Compensation currency. Cash impacts the social dynamics of resource-scarce communitiesand has implications for a region’s long-term stability, a fact that companies often underestimate.When communities have little experience of dealing with cash, particularly large amounts, itspresence can upset traditional power balances and relationships between groups. In many societies,hierarchy is still based on wisdom and age. When cash is introduced, it alters how prestige andpolitical importance are attained. For example, a company’s presence can change a society froma traditional system involving community responsibility to a cash-based system in which loyaltyand, in some cases, security, can be bought and sold. Youth, who in traditional systems wouldnot pass these social benchmarks, become empowered to exert their influence in a communitybased on wealth acquired by compensation payments.


Options and alternativesCompanies have at their disposal a number of methods to avoid doing unintended harmthrough their compensation policies. These include:

1. Conduct context analysis and impact assessment (see P-CRIA). Context analysis and impactassessment is an essential tool in the design of a compensation policy, ensuring that it is basedon accurate understanding of potential conflict issues, including land ownership history, thesocio-economic context into which compensation will play, the most appropriate channels ofcommunication and compensation, and so on. Such assessments are also essential in identifyingthe inter-group divisions that could become possible conflict pressure points during negotiationsover compensation.

2. Explore ‘yield-based’ or direct revenue distribution approaches to compensation.Some companies have experimented with these approaches which can promote strongerbuy-in to the project production by affected communities.

3. Consider payment above government standards. Where government and communitiesare at odds over land ownership, buying land from local owners in spite of legal arrangementswith the government can reduce the risk of hindrance by people who may lose out from thecompany’s presence. Some companies have lobbied governments to ensure their outdatedcompensation terms conform to current market rates.

4. Be consistent in paying compensation rates. Some companies have a clause in their contractwith land owners that no compensation is paid until an agreement is reached with all landowners.This is to avoid causing later conflict by paying different rates to owners.

5. Validate non-monetary value of land. Through careful context analysis and an appreciation ofland’s non-monetary value, companies can endeavour to be sensitive to local cultural values intheir project design and compensation policies.

6. Provide land-for-land compensation. This guarantees economic stability for villagers who havelittle hope of successfully investing their money in the long term.

7. Take steps to ensure that compensation is used effectively. Increasingly, companies takeresponsibility not only for compensation but also to ensure that the compensation is used effectively.Some provide beneficiaries with advice and assistance in selecting investment opportunities.Others help landowners set up scholarship or trust funds and even their own companies to investthe compensation wisely.

8. Compensate according to traditional ownership structures. A context analysis should informthe compensation policy so that traditional ownership structures are respected and reinforced.This requires a focus on shared interests rather than separate identities. Staff should enquirefrom communities in the immediate and broader impact areas what the affected communitiesidentify as issues/ideas/histories/assets that connect, rather than divide them. For example, acompany might construct a hospital serving several communities or an entire region, rather thanmaking services available only to residents of the host community. This helps bring communitiestogether through shared use of this resource, rather than fostering jealousy or frustration thatthey must compete for services provided to one community over another.


9. Be transparent about all aspects of the compensation policy. Compensation policies should bedeveloped in consultation with a wide range of stakeholders and a copy of background work shouldbe made available to the affected communities.

10. Respect the process as much as the result. The tone of negotiations is as important for longer-term outcomes as the result. Companies often rush this phase of a project, when allowingcommunities to develop a sense of ownership over outcomes is a critical conflict-avoidance factor.When discussing compensation policies, companies benefit from sitting down with communitiesto focus first on the relational aspects, before addressing the legal detail.

11. Emphasise long-term impacts over short-term payments. Community representatives feelthat the company has a responsibility to thoroughly inform the population prior to negotiationsabout the social consequences of its impacts. People cannot realistically be expected to havea comprehensive overview of the impact of a mine or an oil installation and may be too easilyimpressed with the instant wealth they anticipate. Some communities say that the cash pouredinto their social structure as a result of compensation payments can have detrimental effects.Landowners could be compensated in cash, but in reasonable amounts and in phases, ratherthan as a one-time payment. Companies can invest from the outset in community developmentas part of the compensation package, depositing the remainder of any revenues or compensationinto a trust fund for future generations. Developing such long-term approaches through dialogueand consultation with communities is an excellent way to insure an overall positive impact frominvestment.


Resources

International financial institutions, Operational PoliciesAsian Development Bank Involuntary Resettlement Policy.www.adb.org

Inter-American Development Bank Operational Policy onInvoluntary Resettlement. www.iadb.org

International Finance Corporation Operational Directive 4.30Involuntary Resettlement. www.ifc.org

Japan Bank for International Cooperation (JBIC) Guidelinesfor Confirmation of Environmental and Social Considerations.www.jbic.go.jp/english/

OECD Development Assistance Committee (DAC) Guidelineson Aid and Environment, no. 3; and Guidelines for AidAgencies on Involuntary Displacement and Resettlement inDeveloping Countries. www.oecd.org/home/

WebsitesCollaborative for Development Action,Corporate Engagement Project. www.cdainc.com/cep/

Novib (Oxfam Netherlands).www.novib.nl/content/?type=Article&id=5229

Oxfam Community Aid Abroad, Benchmarks forthe Mining Industry.www.oxfam.org.au/campaigns/mining/ombudsman/2001/benchmarks.html

Oxfam UK, sustainable livelihoods/land rights page.www.oxfam.org.uk/what_we_do/issues/livelihoods/landrights

World Bank, land policy and administration page.lnweb18.worldbank.org/ESSD/ardext.nsf/11ByDocName/TopicsLandPolicyandAdministration

Other resourcesAltman, J.C. (1998) ‘Compensation for Native Title: LandRights Lessons for an Effective and Fair Regime’. Issuespaper no. 20. Native Title Research Unit, AustralianInstitute of Aboriginal and Torres Strait Islander Studies.www.aiatsis.gov.au/rsrch/ntru/ntpapers/ip20web.pdf

Daudelin, J. (2003) Land and Violence in Post-ConflictSituations (Ottawa: North-South Institute).www.nsi-ins.ca/ensi/pdf/land_and_violence.pdf

Hansungule, M., et al. (2004) Report on Land TenureInsecurity on the Zambian Copper Belt (Oxford: Oxfam).www.oxfam.org.uk/what_we_do/issues/livelihoods/landrights/downloads/full1998_landtenureinsecurityreport.pdf

Pons-Vignon, N. and H.B. Solignac Lecomte (2004) ‘Land,Violent Conflict and Development’ (Paris:OECD).www.oecd.org/dataoecd/29/50/29740608.pdf

Rae, M. and A.Rouse (2001) Mining Certification EvaluationProject: Independent Certification of Environmental andSocial Performance in the Mining Sector (Sydney: WWFAustralia).

‘The Control, Use and Management of Land’ (2002), inBreaking New Ground: Mining, Minerals and SustainableDevelopment (London: Earthscan).www.cplpress.com/contents/C1226.htm

USAID Land and Conflict: A Toolkit for Intervention (2004)(Washington, D.C: USAID). www.usaid.gov/our_work/cross-cutting_programs/conflict/publications/docs/CMM_Land_and_Conflict_2004.pdf

Section 4

Flashpoint Issue 4Indigenous Peoples

Flashpoint Issue 4Indigenous Peoples

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 4: Indigenous Peoples

The issueThere are various estimates of the scope and breadth of the indigenous populations in theworld today.1 Commonly quoted figures place them at around 300 million in more than 70 territoriesfrom the Arctic Circle to equatorial rainforests and the tips of the South American and Africancontinents. The extractive industries have a history of violent and troubled interaction with indigenousgroups, who continue to dwell on the frontiers of investment.

The complexity of the dynamic between indigenous people and multinational companieschallenges the best company and community leaders even in circumstances where both arewilling to work together. Companies, whose mission is to remove natural resources, operate nearcommunities that are physically, culturally, spiritually and economically tied to traditionalhabitats and the resources lying under them. Through long histories of colonisation and turmoil,these communities exist within nation-states that have treated them much differently than fullcitizens living within the same borders. Successor governments are now dependent on revenuesfrom natural resources in their territories. Add to this explosive mix opposing perspectives ondevelopment, power differentials and centuries of prejudice about indigenous culture, and theresult is a recipe for conflict.

Business caseCompanies working in developed and developing countries experience serious difficultieswhen relationships with indigenous peoples deteriorate, including:

Work stoppages. Because of unaddressed concerns over the potentially negative impactof company operations on water resources, indigenous communities blocked access toa mine in Peru for weeks, supported by international and national NGOs. Protests shutdown a major portion of the mining operation.

Local-level violence. After several years of vainly requesting government assistance to removeillegal diamond miners from their protected lands, a Brazilian indigenous group resorted toviolence, killing 24 miners.

Widespread political unrest. When it was learned that most of the benefits from a large-scalegas project in Bolivia would flow out of the country or to the capital, protests by indigenouspeoples and labour unions brought down the presidency in late 2003.

In situations where companies do not have good relations with indigenous peoples, they faceloss of permits and contracts, law suits, hostile advocacy campaigns, the reopening of assessmentand negotiation processes, and the re-drawing of project plans in mid-cycle.

1. Several definitions are used to differentiate indigenous peoples from other groups, depending on different national contexts.There are also several terms used in different national contexts by these peoples, including aboriginal, native and indigenous– often these terms are shown capitalised. For the sake of editorial consistency and with all due respect, this paper uses‘indigenous’. One definition tries to capture what it is that different indigenous peoples share, despite the enormous varietybetween them around the world: ‘Indigenous communities, peoples and nations are those which, having a historical continuitywith pre-invasion and pre-colonial societies that developed on their territories, consider themselves distinct from othersectors of societies now prevailing in those territories, or parts of them. They form at present non-dominant sectors ofsociety and are determined to preserve, develop, and transmit to future generations their ancestral territories, and theirethnic identity, as the basis of their continued existence as peoples, in accordance with their own cultural patterns, socialinstitutions and legal systems.’ Cobo, J. M., (1981). Study on the Problem of Discrimination Against Indigenous Populations,Volume 1 UN document EC/CN.4/Sub.2/476; successive volumes E/CN.4/Sub.2/1986/7; and Add.1-4.


Such pressures influence public and private investors, national and multilateral institutions,and other external stakeholders who are paying increased attention to a company’s ability toengage constructively with indigenous peoples. For companies that have changed their practices,results include easier permitting, greater access to finance, more effective local planning andinvestment, lower project design costs and fewer outbreaks of violence. When relationships arebased upon trust and mutual respect, some companies have experienced a direct competitiveadvantage after indigenous communities requested them by name during a later bidding process.

Standard assumptions and responsesRelationships between indigenous peoples and extractive companies are affected by manyof the same procedures and assumptions that companies use for ‘communities’ in general(see Flashpoint Issue 1: Stakeholder Engagement), but there are a few critical – and someunique – factors that come into play:

Historical grievances or concerns of indigenous peoples (either with national governmentsor past industry practices) are outside the remit of engagement and project design processes.Many companies assume that any attempt to deal with historical grievances will mire them inendless local disputes and demands for compensation.

The major concerns of indigenous peoples are beyond the sphere of companies’ influence.Land rights and access to services are issues for governments, not companies. Economicdevelopment is the sphere of development agencies and NGOs, so companies should stickto their core business and not get involved.

Companies tend to wait until all their ‘ducks are in a row’ before approaching those locallywho bear the greatest impact. When affected peoples are contacted, it is usually to tell themwhat will happen since many companies assume indigenous peoples are incapable ofparticipating in project design and planning because of cultural or historical marginalisation.It is further assumed that it is not in the company’s best interest to concern itself with raisingthe community’s capacity to plan or negotiate as this might weaken its advantage.

Defining the goal as getting a community signature on a document at the beginning of theproject is the most important outcome. Companies assume that such a signature means thesame to indigenous peoples that it does to them and that once a signature is obtained, thecommunity has consented for the life of the project. More often that not, this is far from true.

Conventional assessment processes suffice. Social assessments, when they occur, focus onconventional indicators, such as health or income, and show little knowledge of indigenouscultural values, needs and aspirations, nor of the likely way a project will impact on these.

Indigenous cultures are ‘backward’. Moving toward a more ‘modern’ existence and leavingbehind antiquated practices is assumed to be good both for indigenous peoples and the restof society.


Indigenous peoples ‘will not know what to do with real money’. Benefits provided to indigenouspeoples are either funneled through national distribution schemes or, if localised, focus oncompensation, the provision of infrastructure or contributions to social services and jobs.More often than not, they do not validate traditional cultures, but serve to undermine them.

Key conflict issuesConflict issues with indigenous peoples run the full gamut, involving the company, national andlocal governments, affected communities and neighbouring communities. Critical issues include:

History. Many company personnel say historical mistrust is the first hurdle to overcome. Targetsfor extractive operations are usually in territories that have experienced contact between theindigenous peoples, governments and previous extractive activities, and the experience has notgenerally been positive due to environmental degradation, loss of land, lack of compensation,cultural degradation or the loss of livelihood. Some communities have closed their doors to extractiveactivities altogether. Where companies or governments ignore past grievances and move forwardon a project, conflict may erupt immediately or mistrust may simmer for several years, but itsurfaces eventually.

Land. The most critical factor dividing indigenous peoples from other ethnic or minority groupsis their ancestral relationship to land. Land is the basis for identity, spirituality, culture, medicine,food, housing and livelihood. Conflicts over land entail high stakes for everyone, includinggovernments and companies. They can occur over rights and access, since governments, ratherthan inhabitants, hold the mineral rights. Companies rely for mineral rights on governments,placing both at odds with affected communities who must deal with the impact of losing almosteverything they value. In instances where companies respect surface rights and negotiate directlywith landowners, problems may yet arise if the company has an incomplete knowledge of ownershippatterns, causing conflicts between landowners. Another issue that can cause conflict is resourceuse and protection. Indigenous people govern land and resource use through long-standingcustomary laws designed to manage resource use (plants, wildlife, water, earth) within thecommunity and between neighbouring communities to ensure their sustainable supply. Customsprotect those resources and areas that are considered sacred. Conflicts arise between individualsand communities when resource-use patterns are interrupted or destabilised by company activity.Conflict can also arise between company and communities when traditional resource use iscurtailed, operations result in environmental degradation or sacred places are disturbed.

Benefits. There are two ways in which the provision and distribution of benefits from extractiveindustries has been at the root of local and national conflict. Many schemes for distributing rents,royalties and taxes flow into capitals rather than local centres. Indigenous peoples have tendedto receive less of the basic services that national budgets are designed to fund. When combinedwith the fact that monies come from the development of resources in their own territory, suchdiscrepancies fuel historical grievance. In cases where governments have tried to overcome suchdiscrepancies by creating funds specifically earmarked for indigenous peoples, experience hasshown them to be relative failures, with the funds not being distributed down to the local level.When benefits are distributed locally, they can be problematic if the distribution is poorly conceived.Indigenous peoples point to problems with the company practice of using payments to individualsto secure access and agreement for the project, fueling local divisions. They also point to a notabletrend of indigenous peoples receiving lower compensation payments than non-indigenous peoples


for land and resource use, fueling conflict between communities. Conflict can arise when communityexpectations of royalties, compensation, jobs and services outweigh the reality. High expectationscan result from a company overselling in order to win community support, from a community’signorance of the industry or a project’s ability to deliver benefits.

Development impacts. Infrastructure development, especially the development of roads, is generallydescribed as having a positive impact from a company’s investment in remote communities byhelping inhabitants to reach towns and markets. However, it can also have negative effects asother groups move into the area in hope of finding jobs. In operations lasting decades, in-migrationcan attain monumental proportions, overwhelming indigenous communities and bringing pressureon land, as well as disease, crime, prostitution and increased inter-community conflict.

Cultural impacts. In-migration has critical cultural impacts, bringing different languages, practices,gender concerns and values. Cultural conflict is also a common outcome of the meeting betweenindigenous peoples and company personnel.

Local decision-making. Companies are challenged by traditional decision-making structuresand practices. In the provision of information to communities, they tend to offer only that whichis required by law, and then to rely on standard regulatory procedures. Such procedures placecritical information about a project in the capital, other government bodies and usually informats inaccessible to indigenous residents. Given the pattern of their historical relationshipwith governments, indigenous people assume that they are being ignored, that they are the lastto know of critical developments and that companies have something to hide. Levels of mistrustrise higher if the information is later leaked by third parties. By and large, indigenous decision-making systems are not bureaucratic, so they may seem to companies ad hoc, convoluted ormysterious. This may lead companies to employ ‘relationship brokers’ or create local structuresthat make them feel more at ease. Companies argue that such steps create greater efficiency,but they also generate issues of legitimacy. Conflict may then arise between traditional andnon-traditional structures, and between the different decision-makers.

Consent. The topic of consent, in the sense of ‘free, prior, informed consent’, has been at the headof debate on extractive industry practice for several years. It is usually discussed as a concern forall communities, but has specific and important implications for relations with indigenous peoples.The issue is that consent embodies the fundamental rights of ‘a people’ to shape and control itsfuture as a collective identity; rights that indigenous peoples are actively fighting for at nationaland international levels. It also embodies the concepts of historic rights and empowerment ofindigenous peoples in all facets of life, and is enshrined in international law in ILO Convention 169:

The peoples concerned shall have the right to decide their own priorities for the process ofdevelopment as it affects their lives, beliefs, institutions and spiritual well-being and the lands theyoccupy or otherwise use, and to exercise control, to the extent possible, over their own economic,social and cultural development. In addition, they shall participate in the formulation, implementationand evaluation of plans and programmes for national and regional development which may affectthem directly.2

2. International Labour Organisation Convention 169: Concerning Indigenous and Tribal Peoples in Independent Countries(1991), Article 7.1.


Indigenous peoples are not necessarily or inevitably against extractive operations. But there arerisks if companies find themselves in situations where indigenous peoples do not consent to anoperation. This issue is intimately related to access to land and land rights. Companies increasinglyfind that reliance solely on national governments for a legal right to operate is not sufficient.Indigenous and non-indigenous communities use protest and international pressure to accessthe critical points in decision-making about a project, but indigenous peoples also increasinglyfind relief in influencing national or international court rulings that uphold their right of consent.Judicial systems have begun to focus their attention on governments’ responsibility for demarcatingand titling indigenous lands, and ensuring indigenous participation in decisions with regard tothose lands.

Options and alternativesThere are many ways in which extractive companies have recognised the need to build moresuccessful, less conflictual relationships with indigenous peoples, and a growing body of industrypractice brings this recognition to the operational level.

Companies are learning to see that indigenous peoples are not the same as others. They havehistories, relations with government, laws, livelihoods and values that set them apart fromother communities, and their goals may be different to those assumed by others around them.To ignore the difference is to neglect something that might be critical to a project. Companieshave learned that such differences should be taken into account throughout a project cycle,from the earliest stage to closure.

Some specific examples of changed practices include:

1. Assessment and risk analysis (see M-CRIA and P-CRIA). Industry and other experts say thatthe best and most neglected opportunity to build a positive relationship with indigenous peoplesis in the research phase, and this means knowing enough to ask the right questions. Assessmentsshould investigate local indigenous cultures, land rights (including demarcation and titling),inter-community relationships, the specifics of subsistence economies, local trade relationshipsand sacred areas. Companies find that community participation is crucial in the assessment processif it is to be done accurately. Companies have also begun to place greater attention on assessinggovernment policies, capacity and performance with regard to indigenous peoples’ rights.

2. Engagement process. Companies are beginning to develop direct relationships with indigenouspeoples at much earlier stages, even before government permitting. To do this effectively,engagement practices need to change to accommodate indigenous decision-making and cultures.Company personnel are visiting communities, providing more information and in formats thatare more accessible. Processes have been slowed to promote greater inclusion. More importantly,company personnel are learning that strong community negotiating partners benefit thecompany. Support is provided to improve negotiating skills and knowledge about rights, legalagreements, potential impacts and other key issues. The emphasis is increasingly on directnegotiation, but there are still challenges for companies in their understanding of indigenousdecision-making. Some communities have begun to document these in order to come to aninternal understanding about their dealings with a large commercial operation, but also tomake it more transparent to the companies with whom they work.


Companies are also starting to develop company/community committees to help carry therelationship through the project cycle, and to resolve conflict before it gets out of hand. Thesejoint committees provide a transparent mechanism for either party to discuss concerns, developprojects, or measure and evaluate changes in the operation as it moves through its cycle. Thesemechanisms incorporate measures of the parties’ different cultures, providing an atmosphereof joint learning and trust.

3. Impact and benefit-sharing agreements. This term describes the kinds of formal, negotiatedagreements that companies have developed with indigenous peoples. They include agreement onwhere roads are to be built, the number of jobs provided, the use of traditional foods in companycafeterias and adjusted schedules to accommodate traditional livelihoods such as hunting andfishing. Even with these tools to mitigate possible areas of conflict, there can be differences ininterpreting the formal documents that result. Companies often see them as the opportunity tocome to an early and final agreement on benefits, while indigenous communities see the documentas a work-in-progress and solely the measure of the relationship at one point along the way.

4. Cross-cultural training. As part of the local engagement process, but often on a broader scale,companies are developing cross-cultural training programmes with the help of indigenous peoplesin their areas of operation. These courses focus on helping company personnel to understandindigenous cultures, values and practices, but there are some that help company personnelexplain company culture and operations to indigenous communities.

5. Land rights. Rather than become mired in the conflict between whether governments orindigenous peoples have the right to grant consent to operate, companies are moving towardacknowledging that both have rights and that both must be accommodated if a project is to besuccessful. This has led to companies supporting community efforts to clarify surface rightsand demarcate and title territories.


Resources

International conventions and voluntary standardsEquator Principles. www.equator-principles.org.

International Labour Organisation Convention 169: ConcerningIndigenous and Tribal Peoples in Independent Countries.www.unhchr.ch/html/menu3/b/62.htm

Proposed American Declaration on the Rights of IndigenousPeoples. www.cidh.oas.org/Indigenous.htm

UN Draft Declaration on the Rights of Indigenous Peoples.www1.umn.edu/humanrts/instree/declra.htm

International financial institutions, Operational PoliciesAsian Development Bank, Indigenous Peoples Policy.www.adb.org/IndigenousPeoples/default.asp

Inter-American Development Bank, Indigenous Peoples PolicyFramework. www.iadb.org/sds/IND/site_401_e.htm

World Bank Operational Policy 4.10 Indigenous Peoples.www.worldbank.org/indigenous

WebsitesAustralian Institute of Aboriginal and Torres StraitsIslander Studies. www.aiatsis.gov.au

Forest Peoples Programme. www.forestpeoples.org

International Work Group for Indigenous Affairs. www.iwgia.org

North-South Institute. www.nsi-ins.ca

UNHCHR Working Group on Indigenous Populations.www.unhchr.ch/indigenous/groups-01.htm

UN Permanent Forum on Indigenous Issues.www.un.org/esa/socdev/unpfii/

University of Melbourne, Indigenous Studies Program,Agreements, Treaties and Negotiated Settlements Project.www.atns.net.au

Other resourcesDanielson, L., et al. (2002) Finding Common Ground: IndigenousPeoples and Their Association with the Mining Sector (London:Earthscan).

Mining and Indigenous Peoples: Case Studies (1999) (Ottawa:International Council on Metals and the Environment).www.icmm.com/library_publicat.php?rcd=32

‘Mining Indigenous Lands: Can Impacts and Benefitsbe Reconciled?’ (2001) Cultural Survival Quarterly, vol. 25, no.1. www.culturalsurvival.org/publications/csq/index.cfm?id=25.1

Recipe for Dialogue Guidebook (2003) (San Francisco: Businessfor Social Responsibility and First Peoples Worldwide).www.bsr.org

Rozon, G. (2003) Management Indicators for Assessing theRelations between Oil Companies and Indigenous Peoples(Montevideo: ARPEL).

Section 4

Flashpoint Issue 5Social Investment

Flashpoint Issue 5Social Investment

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 5: Social Investment

The issueMany companies undertake extensive efforts to implement community social investmentprogrammes, such as building schools, hospitals or roads in the areas in which they operate.These programmes have become increasingly grounded in the experience of local and internationalNGOs and other development actors, with innovative partnerships emerging between differentsectors, pooling their ‘core competences’ toward shared goals. Companies engage in such projectsthrough a combination of motivations, including seeing social investment as a strategy for riskmitigation and a desire to deliver – and to be seen to deliver – a ‘net benefit’ to communities thatare affected by their operations.

However, many such projects show disappointing results. Well-intentioned development initiatives,such as school construction or the promotion of local economic activities, can unintentionally feedinto local tensions and fuel conflict through their selection of recipients or priorities. They can alsodivert attention away from the social impacts of other areas of business activity. Companies areinescapably part of any context in which they operate: their day-to-day activities all have impactson the societies in which they work. Such impacts can be positive or negative but, in contexts ofsocial or political tension, they are never neutral. Understanding how all activities, including thephilanthropic, can have harmful impacts, and how to take steps to avoid them, are core featuresof designing conflict-sensitive business practices (CSBP).

The business caseSocial investment is a tool for ensuring that even in operational contexts where local governanceand service delivery are poor, the communities most directly impacted by a company’s investmentexperience some tangible benefits. It represents one of the major channels of interaction availableto companies seeking a ‘social licence to operate’ through winning the support of local stakeholders.If companies successfully manage to contribute to the social and economic development of aparticular place, they are investing in their own security in terms of more harmonious relationshipswith host communities, and by limiting the costs imposed on operations by underdeveloped and/orconflicted contexts. These can range from poor infrastructure, unskilled local work forces andpolitical or physical insecurity, and are evident at the local, regional and national levels.

Increasingly, governments and international creditors expect companies to make some commitmentto community development programmes, so competitive gains are also to be enjoyed from takingthis area of business seriously. A competitive-minded approach to social investment has itsown pitfalls, however, and as the international debate on corporate social responsibility becomesmore sophisticated, NGOs and others have begun to scrutinise the content and impact of socialinvestment programmes more rigorously, and to ask more difficult questions about their relevanceto the overall impact of companies’ operations. Common complaints that companies give with onehand, while taking away with the other, or are inconsistent across business areas, or insincerein their rhetoric about community development, need to be taken seriously if the gains to bemade through social investment programmes are to be realised. And when social investmentprogrammes themselves become a source of conflict or competition within communities, ashas been seen most markedly in Nigeria, companies may, in effect, undermine the security oftheir own operations. Competition over resources of any kind is inevitable in resource-scarcecontexts: managing social investments in such a way that they do not fuel competition –or enable it to become violent – should be a priority.

1. This paper is an adapted version of work published by the Collaborative for Development Action, Corporate Engagement Project.Collaborative for Development Action, 130 Prospect Street, Suite 202, Cambridge, MA 02139, USA. Tel: 1 617 661 6310,Fax: 1 617 661 3805. www.cdainc.com/cep

1


Standard assumptions and responsesCompanies tend to go into social investment projects with some of the following assumptions,feeding into detrimental policies or impacts:

Social investment projects are always ‘good’. Companies often assume that social investmentor community relations efforts will, by definition, contribute to improved relations betweencompanies and host communities. There is evidence from a range of contexts that programmesthat benefit some people very often disadvantage others, and do not necessarily contributeto stability.

To be satisfied, the community needs to see immediate, tangible benefits. Companies assumethat local communities will not be satisfied until they see direct benefits from their presence inthe form of physical structures or financial investment. This assumption often leads to an emphasison outcomes without determining process and, more importantly, without fully understandingwho will benefit and who will not. When companies work to anticipate impacts (includingavoiding negative ones), to respond to community needs and communicate with communitiesduring the process, local hosts are often satisfied despite the fact that tangible benefits are slowerto come. A focus on the immediate and tangible misses out on opportunities for companies tocontribute to community development through emphasising skills training and capacity building,for instance. An approach focused on infrastructure alone, moreover, can increase communities’dependence on companies.

The community is against us, so we need to pacify it. Companies assume that conflict withcommunities is inevitable; that regardless of how they operate their core activities, communitieswill always seek compensation; and that companies will be subject to general waves of violenceover which they have no control. Rather than analysing a specific conflict and addressing itsroot causes, community relations staff may seek to address existing grievances by ‘giving away’schools, speedboats, soccer fields and so forth. This is an inadequate response to the root causesof many grievances.

Social investment strategies are a tool for responding to apparent threats. Often a companywill establish a community relations project in the village that is most affected by its presenceand with whom the company inevitably has most contact. This reinforces smaller identities ratherthan broader ones, feeds jealousy between groups and increases the risk of inter-group conflict.This approach can backfire when those who feel they have been left out direct their grievancestowards the company, or try to obtain ‘their share’ through violent means. It also rewards violentrather than non-violent behaviour. If companies only respond to potential threats of violence orwork obstruction, communities may feel they can only achieve their goals through such threats.By rewarding violent behaviour or the threat of violence with social investment projects, companiesreward negative rather than positive behaviour. By only responding to the trigger, companiesensure that the trigger will happen.


Key conflict issuesSocial investment as a social divider or conflict resource. Unless social investment programmesare designed so that they do not reinforce divisions among sub-groups, or historical inequitiesand concentrations of wealth and power, such efforts can worsen, rather than improve,corporate/community relations and relations between local sub-groups. In conflict areas,the latter impacts can be extreme.

Creating dependency. In many contexts, companies become a region’s major provider of basicservices through the sheer scale of their social investment programming. If this is judicious andgrounded on a good understanding of local power dynamics and rivalries so as to avoid fuellingconflict, it may have short-term benefits. In the long run, however, by introducing large financialinvestments to which communities would otherwise not have access, companies often createa standard of living that cannot be maintained once they have left. Hand-outs create dependencyand erode state legitimacy and accountability. State weakness or illegitimacy is a correlate toconflict.

Negative behaviour reinforcement. By using social investment as a tool for managing disturbances,companies often inadvertently reward violent behaviour, which quickly develops into a patternof disturbance and reward, raising the level and likelihood of conflict. To avoid this impact, socialinvestment should instead be based on a context analysis and participatory research, leading toa comprehensive strategy.

Options and alternativesSome companies are beginning to exhibit more nuanced and creative approaches to socialinvestment that seek to avoid its potentially harmful impacts and maximise its potential as aconduit for contributing to peaceful societies:

1. Look at social investment through an operations lens, rather than as an add-on. Establishingand maintaining relations with local stakeholders through social investment projects cannot simplybe contracted out or delegated to a specialised department, while other departments conduct‘business as usual’. Responsibility for community relations projects may be localised in onedepartment, but implementation needs to be spread throughout the company. For example,as long as local communities perceive the personnel department’s hiring criteria as unfair orlocal staff feel threatened by operations, the efforts of the community relations department willbe unsuccessful.

2. Conduct a context analysis and impact assessment prior to designing a social investment policy.A first step towards establishing relations with local stakeholders is to identify pre-existingschisms in the host society and identify how the company’s day-to-day activities either positivelyor negatively impact existing conflicts. Such an assessment is the basis of any effective socialinvestment policy and an essential ingredient for success. Only by understanding these dynamicscan companies establish cordial relations and a stable working environment, and supportforces in society that integrate communities and build toward a peaceful, inclusive future.A conflict-sensitive social investment strategy, grounded in such context analysis, is a key outputof CSBP, as described in the mitigation steps of M-CRIA and P-CRIA.


3. Ensure that social investment projects address root causes, and are not just reactions toepisodic symptoms. When a company considers implementing a social investment project inresponse to a local demand or an episode of violence, companies should evaluate with the communitythe root causes of dissatisfaction and develop a project that will address them, however indirectly.Social investment projects should not be awarded to meet community demands that do notalso address the underlying root causes of violence against the company or tension in society.Participatory analysis in order to understand communities’ grievances and their wider context canidentify the underlying issues of conflict that social investment helps to remedy. Designing projectsin consultation with stakeholders is also important. In this respect, social investment is an opportunityto contribute to peacebuilding.

4. Involve the government. Companies should ensure buy-in from local government authoritiesprior to establishing social investment projects. This can be done by working with the governmentto implement an existing development plan (provided the plan ensures equal distribution of services).Without government buy-in, there may be no local funding or staff capacity to manage thefacilities once they have been built. School buildings have been constructed in areas in greatneed of education which continue to stand empty for lack of teachers’ salaries or funds to purchaseblackboards and other supplies. This leads to frustration and anger among community members,who often direct their grievances against companies, or governments, once companies havedeparted. Companies may be inclined to exclude government officials because they view themas ineffective, burdened by bureaucracy, tainted by corruption or because they want to be solelyresponsible for the services and funding the company provides. Over the long term, however, itis local government that must deliver on the demands of local communities. Working to supportand strengthen its effectiveness will have greater long-term benefits.

5. Collaborate with others. The competitive goals of companies sometimes undermine the strengthof initiatives in the social arena. Partnering with other multinational companies, as well as NGOs,local businesses, INGOs and development agencies, will enhance the impact of initiatives andmaximise the long term gains for all parties.

6. Focus on impact rather than input. People often assess effectiveness in terms of the successfulcompletion of plans. For example, if the plan was to run 15 training sessions or rehabilitatefour clinics, the activity is judged successful when those goals are achieved. However, suchindicators tell only about programmatic inputs and give no information about how completingthese activities affected either the intended beneficiaries, or larger society. For a genuine assessmentof social investment programmes, companies must develop systems that trace the impact ofan input on the society it was intended to benefit. Some companies do this through public meetingsin which they hear the reactions of the communities directly. Others monitor increasing, ordecreasing, trends in the number and type of complaints received in suggestion boxes. Otherspoint at trends in security incidents.

7. Be clear about the objectives of social investment projects. Companies are often unclearabout the specific, strategic objectives of their social investment efforts. They may feel pressuredto ‘do something’, or have vaguely defined conflict-reduction objectives. To be most effective,companies need to be clearer and more transparent about their project objectives and thestrategies used to implement them.


Resources

WebsitesBibliographic database on private sector foundations, Miningand Environment Research Network (MERN), University ofWarwick. www.iipm-mpri.org/biblioteca/index.cfm?action=ficha&lang=eng&cod=107

Business for Social Responsibility, community investment page.www.bsr.org/AdvisoryServices/CI.cfm

Collaborative for Development Action,Corporate Engagement Project. www.cdainc.com/cep/

Imagine Canada. www.imaginecanada.ca/

International Institute for Sustainable Development, communitiesand livelihoods page. www.iisd.org

World Bank, local economic development and mining page.www.worldbank.org/ogmc/wbminingled.htm

World Bank, Oil and Gas Sector Issues and Policy, socialand economic impact page.www.worldbank.org/ogmc/wbogpolicysocioeconomic.htm

World Business Council for Sustainable Development, sustainablelivelihoods page. www.wbcsd.org

Other resourcesGarvey, N., et al. (2004) Corporate Accountability to the Poor?Assessing the Effectiveness of Community-Based Strategies(Sussex: Institute of Development Studies).

International Finance Corporation (2001) Investing in People:Sustaining Communities through Improved Business Practice(Washington, D.C.: IFC).

Mining Companies and Local Development (2003)(Montevideo: Mining Policy Research Initiative). www.iipm-mpri.org/biblioteca/index.cfm?action=ficha&lang=eng&cod=150

Mining and Environment Research Network (2003)Private Sector Development Institutions: Drivers and Practice(Montevideo: Mining Policy Research Initiative).www.iipm-mpri.org/biblioteca/docs/mern_foundation_report.pdf

North-South Institute Investing in Poor Countries: Who Benefits?(2004) Canadian Development Report (Ottawa:North-SouthInstitute).

Parker, R. et al. (2004) Business and Economic Development:Mining Sector Report (San Francisco: Business for SocialResponsibility and AccountAbility].

Section 4

Flashpoint Issue 6Dealing with Armed Groups

Flashpoint Issue 6Dealing with Armed Groups

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 6: Dealing with Armed Groups

The issueThe overwhelming majority of armed conflicts are intra-state, between governments and groupsnot under their control who are termed ‘rebels’, ‘guerillas’, ‘insurgents’, ‘terrorists’ or ‘freedomfighters’, depending on the context and who is describing them. These groups range from small,isolated guerilla bands to quasi-states that field armies and control large territories. Their ideologies,means of support and constituencies vary tremendously. What they do have in common is theirunrecognised status and the fact that they are armed, both of which create real problems forcompanies that encounter them.

Armed groups are illegal – considered traitors at home and terrorists abroad, though, overtime, they can acquire a more elevated status by evolving into the de facto rulers of breakawayterritories. In addition to their informality, they usually sustain themselves through illicit meansand their members live underground.

Companies find it hard to sustain relationships with such groups – though there is a probabilitythat they will be invited to do so because they are seen as a source of revenue, either through‘taxes’ in exchange for safe access to lands they control, or other levies, such as kidnapping andextortion. Is it legitimate to engage with armed groups and, if so, when? What are the risks? Ifcompanies do strike up relations with armed groups, how should they structure the engagement?

The business caseThere is a range of business-case arguments against engaging with armed groups. However,in certain circumstances, there may be arguments in favour, though the risks remain steep.

Against engaging:

• Transparent contractual relationships with armed groups are difficult, if not impossible,given their illegality and unrecognised status. Engaging with them at a business level exposesa company to allegations of bribery, corruption and illegality.

• In the pursuit of their political and military objectives, armed groups are likely to have committedhuman rights abuses, and companies expose themselves to local and international criticismfor any association with them. Legal prosecution under the doctrine of ‘complicity’ may followif it can be proved that a company provided financial or logistical support to perpetrators ofhumanitarian crimes (see Introduction and Screening Tool).

• Political pressure from host governments against companies dealing with rebel groups ismore than likely to be intense because of the threat they represent to national sovereigntyand territorial integrity, leading in the most extreme cases to expulsion or seizure of assets.

• Because investments represent a source of revenue for both governments and armed groups,a company’s mere presence can directly fuel violent competition between these factions, openingit to reputational damage and physical insecurity.


For engaging:

• Where government security forces are absent or unable to deal effectively with attacks oncompany staff or property, managers may decide to make the case against attack directly toan armed group. This rationale is useful in the short term, but could lead to later extortiondemands, incurring the risks mentioned above.

• Armed groups can have strong links to local communities or others affected by a companyinvestment and may as political actors represent long-term historical grievances in the hostsociety. In a bid to develop good relations with a spectrum of stakeholders, companies maytry to acknowledge these grievances by seeking tolerant relations with them.

• As part of a thorough context analysis (see M-CRIA and P-CRIA), companies need to gatherinformation to minimise risk. Talking to aggrieved parties, including armed groups, can beviewed as a normal exercise in due diligence by the company to confirm that its context analysisis correct. Where it is safe and the government tolerates such contacts, it may be sensible tomeet the representatives of armed groups in order to understand their motivations, threatperception and views on company’s investment, or to use a third party to do so.

Standard assumptions and responsesSome companies harbour a number of standard assumptions about armed groups:

Dealing with armed groups is dangerous. While this is clearly true, there may be some situationsin which it is necessary or legitimate to engage with them, as discussed above.

There is no choice but to pay them off. Companies expose themselves to a range of legal,material and reputational risks if they engage in extortion payments with armed groups.International legal authority is extending its reach and a number of former rebel commandershave ended up in court. Some companies have begun to develop creative solutions to extortiondemands, as discussed below.

We can engage readily with those who stand up to tyranny. Where an armed group’s campaignenjoys domestic and international support, and the regime it opposes is isolated (and perhapssanctioned by the UN), it may be less problematic to engage in contacts with it. However, fewconflict situations are morally simple and it is highly probable that the group will be engagingin abusive practices that can still rebound on a company’s reputation.

If a rebel group is likely to win, prior engagement is a sensible investment of resources.Armed conflict is not an exercise in venture capitalism and companies should be wary of buildingrelationships with armed groups on the basis of future gain. Engaging in order to win influencecan promote violence since it promises rewards to those who have taken up arms. Companiesshould remember that civil wars are unpredictable. In short, betting on the winner is neitherpractical nor ethical.


Armed groups are all terrorists. Armed groups attack civilians and use violence to force theauthorities to respond to their demands, but the term ‘terrorist’ is loaded because state securityforces often use similar methods. The majority of civilians killed in conflict are victims of forcesunder state control or sponsorship, not rebels. Using pejorative descriptions can undermine acompany’s ability to understand accurately the conflict context.

Most are communist or anti-capitalist. Stemming from cold war experiences and legacies,this stereotype is also false. Groups take up arms for a bewildering variety of reasons and studyof recent conflicts shows that many do so from profit motives. Using simplistic labels to definearmed groups demonstrates a lack of understanding of the conflict context that will express itselfin a poor management strategy.

Political armed groups are different to criminal gangs. Most armed groups finance theiractivities through crime, and many groups founded on political principles continue to fightfor criminal gains, such as smuggling or plunder. However, Mafiosi and other primarily criminalgangs have also been prepared to contest the power of political authorities. Understanding thecomplex interplay between criminal and political agendas can help to inform a more accurateassessment of the conflict context.

Key conflict issuesCompanies should ensure that when they are present in conflict zones their actions do not exacerbateviolence. Where possible, they should take steps to promote peaceful outcomes. The risk thatengaging with armed groups at any level will make the situation worse could outweigh any benefits.There are three basic but critical categories of risk in this regard:

Companies are a source of finance for war. Given their status as economic actors and potentialsources of finance, companies should exercise extreme caution when considering engagementwith armed groups. They can easily become caught in a mesh of extortion and bribery, the revenuefrom which directly fuels violence. Allowing this to happen incurs legal and reputational risks,and fundamentally jars with the CSBP approach.

Conferring legitimacy on armed groups. Most armed groups crave the legitimacy that comes frombeing acknowledged, whether formally or informally. Engaging with them can confer a legitimacythat may or may not be warranted. It is also important to recognise that, in situations of openviolence, company investments confer a similar legitimacy – and revenue – on the host government,which is also party to the conflict.

Rewarding violence. By engaging with armed groups, companies inadvertently send a messageto the community that violence is rewarded, in this case through access to foreign business andfinancial gain. This can contribute to endemic cycles of violence.


Options and alternativesDeveloping a strategy for safely dealing with armed groups operating in proximity to a companyinvestment is not simple. In fact, it poses such serious challenges that, from a conflict-sensitiveperspective, it is a factor that should make a company re-think its investment, if identified earlyas a potential risk.

Humanitarian and peace groups, which aim to end war or at least mitigate its consequences,have a mandate to engage with all parties to a conflict. Their need to do so is self-evident andthe various actors accept it. The case for companies engaging with armed groups is lessclear-cut precisely because, as economic actors, they can easily become a source of financefor escalating the conflict.

Engagement can be appropriate in specific ways in specific contexts. To ascertain whether thisis the case or not, companies need to understand accurately the conflict context, its actors andprofile. This requires detailed stakeholder mapping and conflict analysis tools (see M-CRIA andP-CRIA), and careful consideration of the following questions:

Understand the armed group(s). Armed groups are as diverse as the situations in which theytake up arms. Companies need to understand both thoroughly. Key points to consider:

• Leadership. Is it in control? Is it cohesive? Is there a political wing and, if so, how much influencedoes it exert? Is there in-fighting between groups?

• Ideological basis. What motivates the group(s) and which aspects of ideology create openingsfor humanitarian and peace objectives? What types of people/groups are targeted as a resultof the group’s ideology?

• Constituency. Who supports the struggle? Who does the group say it is fighting for?

• Sponsors. What foreign governments or other actors give political or material support tothe group(s)? Who are the local sponsors?

• Means of support. How are armed groups sustained?

• Assessment of the company. The group or groups’ view of the company is likely to be based on its national origin. What is that nation’s stance in the specific conflict; its historic involvementin the host country; its alliances; the identity of local staff? etc.

Factor in state attitudes. Companies that seek to engage armed groups need to consider howthe state would view such contacts. They may be illegal and therefore not an option. However,the state might permit such contacts – or tolerate them – but later use them in ways that reboundnegatively on the company. As a general rule, a company would be wise to assess the likelygovernment response to it contacting an armed group before doing so. An armed group’s tacticscan only be understood in relation to those of the government’s forces.


Once a company is certain it understands these different dimensions to a conflict, the followingoptions are open:

1. Principled non-engagement in extortion and bribery. In some circumstances, the mostsignificant contribution a company can make to peace is strict non-engagement. This choicemay incur threats to its operations, but adopting a long-term approach in the interests of peacerequire that these are faced down. Again, the presence of such demands is in itself a risk factorso serious that it could well point to a no-go situation. When operating in such contexts,companies need stringent security arrangements, but it is essential that these themselvesdo not contribute to the climate of violence. Security forces should be trained in human rightsand conduct themselves in accordance with humanitarian law and best practice (see FlashpointIssue 6: Security Arrangements). A company can help by using its influence with other companiesin the region to ensure that the industry as a whole resists pressure to finance the conflict.

2. Development of strong relations with local communities. Strong relationships with communities,particularly those sympathetic to armed groups operating in the area, can act as a cordonsanitaire to counteract the security risks incurred through non-engagement. If the communityis convinced that the company’s presence is in its interest and not just the government’s, thisencourages an armed group to protect it. Companies in Colombia have turned this idea into aworkable strategy of discouraging attacks from the various armed groups in their operatingenvironment.

3. Use of influence to support humanitarian and peace efforts. There may be discrete ways,through its core competencies or through use of trusted third parties, that a company can useits presence to promote peace by influencing armed groups. For example, staff can serve asintermediaries between rebel commanders and peace negotiators; companies can expressstrong disapproval of acts of violence; and companies can lobby governments to initiate peacetalks, negotiate settlement and address any structural grievances that fuel the conflict.The CSBP approach is designed for companies both to understand conflict and ensure thatintervention through all areas of their business ‘do no harm’ and contribute to peace. Indirectlytherefore, companies can seek to address armed groups’ grievance issues within their spheresof influence, where appropriate (see mitigation sections in M-CRIA and P-CRIA).


Resources

International conventions and voluntary standardsGeneva Conventions and Additional Protocols I and II.www.genevaconventions.org

UN Draft Norms on the Responsibilities of TransnationalCorporations with Regard to Human Rights.www.unhchr.ch/huridocda/huridoca.nsf/(Symbol)/E.CN.4.Sub.2.2003.12.Rev.2.En?Opendocument

WebsitesArmed Groups Project. www.armedgroups.org

Business and Human Rights Resource Centre,security and conflict page. www.business-humanrights.org/Categories/Issues/Security

Collaborative for Development Action,Corporate Engagement Project. www.cdainc.com/cep/

Control Arms Campaign. www.controlarms.org

Fafo AIS. www.fafo.no/liabilities/index.htm

Global Witness. www.globalwitness.org

International Committee of the Red Cross (ICRC),war and accountability page.www.icrc.org/Web/eng/siteeng0.nsf/iwpList2/Focus:Accountability

International Action Network on Small Arms. www.iansa.org

Kimberley Process (conflict diamonds).www.kimberleyprocess.com:8080/

Office for the Coordinator of Humanitarian Affairs, protectionof civilians in armed conflict page.www.reliefweb.int/ocha_ol/civilians/armed_groups/index.html

Other resourcesConciliation Resources (2004) Engaging Armed Groupsin Peace Processes, workshop report.www.c-r.org/accord/ansa/workshop.html

ICRC (2002) Forum: War, Money and Survival(Geneva: ICRC). www.icrc.org

International Alert (1997) Code of Conduct(London: International Alert). www.international-alert.org

International Alert, Africa Peace Forum, Cecore, CHA, Fewer,Saferworld (2002) Conflict-Sensitive Approaches to Development,Humanitarian Assistance and Peacebuilding: A Resource Packwww.international-alert.org/publications.htm

Petrasek, D. (2002) Ends and Means: Human Rights Approachesto Armed Groups. (Versoix, International Council on HumanRights). www.ichrp.org

Switzer, J. (2001) ‘Armed Conflict and Natural Resources:The Case of the Minerals Sector’. Mining, Mineralsand Sustainable Development, July 2001, no. 12.(London: IIED/MMSD).www.iied.org/mmsd/mmsd_pdfs/jason_switzer.pdf

Section 4

Flashpoint Issue 7Security Arrangements

Flashpoint Issue 7Security Arrangements

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 7: Security Arrangements

The issueCompanies have a legitimate responsibility to staff and shareholders to ensure that their propertyand personnel are physically protected from violent or illegal acts. Security threats can emanatefrom local communities, company employees, armed groups or other factions, artisan minersand migrant workers. They include:

• Petty theft• Demonstrations (armed or unarmed)• Riots• Illegal mining on an undeveloped area• Sabotage of pipelines and other installations• Kidnapping, intimidation or assassination of staff.

The types of security arrangements companies make to handle these threats can have significantrepercussions on the conflict-risk context. Cases exist where, through the conduct of securityforces appointed on their behalf, companies have become implicated in human rights abuses,suffered deteriorating relationships with local communities and even loss of control in a volatilecontext. Security arrangements that are not founded on a substantial understanding of the context,stakeholders and international best practice run the risk of aggravating the very risk factors fromwhich a company seeks to shield itself. Companies increasingly recognise that the most effectivesecurity strategies are developed with community perspectives and relations to the fore.

The business caseThere is a strong business case for companies in unstable regions to take all possible stepsto design conflict-sensitive security management strategies. Failure to so can impose a rangeof costs, including:

Security. Security forces that are not trained, or do not conduct themselves according to the higheststandard of professionalism and with regard to International law, can all too easily become anaggravating factor in unstable contexts. Companies may then face ongoing security risks to propertyand personnel.

Reputation. An aggravated security context, in which company security staff become involvedin violent skirmishes with local communities, is likely to attract the attention of local orinternational NGOs and media, leaving the company open to allegations from which, given theescalating nature of violence, it might be difficult to distance itself. Conversely, seeking out conflict-sensitive alternatives can enhance reputation locally, internationally and among peers.

Security and community relations are best managed separately. Traditionally, securitymanagers are located far from community relations departments in terms of institutionalcooperation. Increasingly companies recognise that these two departments need to workclosely together if their individual targets are to be met.

Legal. Companies run the risk of becoming implicated in abuses of human rights and criminallaw if the security forces protecting their project are involved in such abuses.1

1. As demonstrated by recent cases brought against companies under the US Alien Tort Claims Act (ATCA). See Fafo AISwww.fafo.no/liabilities/index.htm


Deteriorating local relationships. If security forces conduct themselves in a way that contributesto an escalation of tension or directly commit abuses against local communities, local perceptionsof the company itself will be tarnished, sometimes irrevocably. This can impose business costs.

Repercussions on civil conflict. Companies that rely on security forces provided by a repressiveregime (whether through choice or contractual requirement) increase local perceptions thatthe company’s activities are an arm of government. Any claim to neutrality risks collapsing if acompany is seen to extend unruly state power into an already volatile region.

Standard assumptions and responsesCompanies carry a number of standard assumptions about the kinds of security arrangementsthat are appropriate in unstable regions, some of which can lead to poor strategies:

Security can be bought. Political or security risks are conventionally analysed as cost factors,to be dealt with by means of increased security budgets. Some companies are taking a morequalitative, strategic approach, which is essential to designing effective security arrangements.

To protect staff, build fences higher. There is a tendency for some companies operatingnear violence, or who have become its target, to adopt a siege mentality. Symptoms of this includearmed guards, high fences, curfews, CCTV cameras and radio checks, fast driving in the field andthe tendency of staff to avoid integrating with local residents as far as possible. While retreatis a natural response to threat, it exacerbates local perceptions of company employees as alien,privileged and unsympathetic to the community or country’s needs and identity. This alienationincreases the chances that company staff will be perceived as a source of grievance and eventuallybe attacked.

The conduct of state security forces is beyond our sphere of responsibility. Companies areoften required to use state security forces by host governments. Companies may assume thatthe protection provided by state security forces exonerates them from any blame arising from themethods employed to enforce security. This is not entirely the case. While direct responsibilitymay be hard to prove, legal cases are on the rise, and reputational risks of association are high,with international media and local stakeholders tending not to distinguish between the finer shadesof complicity.

In Colombia, one oil company facing a lawsuit under the ATCA has been accused of aiding andabetting paramilitary forces which committed human rights violations. The company denies thecharges. In the late 1990s, another oil company was accused of passing information to paramilitaryforces who used it to commit human rights abuses against communities sympathetic to an oppositiongroup, that had previously attacked company assets. In Burma, the military asked an oil companyto supply jeeps that were later used to commit human rights abuses. In Nigeria, oil companieshave been accused of providing weapons, or the means of acquiring them, to security forces whoused them to commit human rights abuses.

Local police are ineffective. Local police can be underpaid, under-trained and corrupt, leadingcompanies using outside private security to be dismissive of their competence. Set against this,however, local police usually have a better acquaintance with the people living in their districts.Competent, impartial and effective law enforcement is critical to a region’s long-term security.


Companies that find ways of working with and building the capacity of local policing, while bolsteringtheir own security, will have improved long-term impacts on their host communities.

Key conflict issuesSecurity is at the frontline between a company and its operating environment and is critical forall areas of business.

Acts of violence. Violence breeds violence. If security forces protecting company assets engagein disproportionate or repressive acts of violence, they will reinforce a culture of violence andconflict that can easily escalate.

Handling grievances. When community grievances against a company over jobs, benefits orenvironmental hazards are met by armed security rather than dialogue, it increases the distancebetween community and company, increasing the likelihood of conflict. When one community isfavoured over another, it can also fuel intra-community tensions.

Macro impacts on human rights situation. Turning a blind eye to misconduct by state securityforces contributes to a worsening human rights situation and further instability in the country.

Options and alternativesThe security of an investment is inextricably bound up in the security situation at large. Designingeffective security management requires thorough context analysis at both macro and micro levels(see M-CRIA and P-CRIA). These tools enable companies to identify structural and trigger securitythreats that can be addressed at various levels: by designing more effective security managementstrategies; by tackling security sector reform or weapons flow (if they are identifiable as issues ofconcern); and through social investment and policy dialogue activities.

In 2000, the US and UK governments (later joined by the Netherlands and Norway) convened agroup of representatives of leading extractive industry companies and NGOs working on humanrights, conflict transformation and corporate social responsibility, in order to develop some guidingprinciples for managing security arrangements in a manner consistent with human rights. Theoutcome was the Voluntary Principles on Security and Human Rights which offers options andalternatives for companies in three key areas: risk assessment; interactions with state security;and interactions with private security.

The challenge for the current Voluntary Principles group is to demonstrate that the Principlesare a workable and effective tool, through implementation, collecting and sharing best practice,developing monitoring mechanisms and accountability to the principles, and extending their reachto a wider group of companies and to new policy fora.

If followed carefully, the principles offer a useful mechanism for managing security arrangements,and addressing the issues and risks raised above. They call for a regularly updated context analysisof the specific conflict-risk situation, and the engagement of local communities in designing securitystrategies, human rights training, monitoring of security forces and macro-level policy dialogue.An augmented institutional role for security and cross-departmental dialogue between headquartersand on-the-ground managers are required to ensure their full implementation. The VoluntaryPrinciples are included in full in box 1.


Box 1: The Voluntary Principles on Security and Human Rights

IntroductionGovernments of the United States, the United Kingdom, the Netherlands and Norway, companiesin the extractive and energy sectors (‘companies’), and non-governmental organisations (‘NGOs’),all with an interest in human rights and corporate social responsibility, have engaged in a dialogueon security and human rights.

The participants recognise the importance of the promotion and protection of human rightsthroughout the world and the constructive role business and civil society – including NGOs,labour/trade unions and local communities – can play in advancing these goals. Through thisdialogue, the participants have developed the following set of voluntary principles to guide companiesin maintaining the safety and security of their operations within an operating framework thatensures respect for human rights and fundamental freedoms. Mindful of these goals, the participantsagree to the importance of continuing this dialogue and keeping under review these principlesto ensure their continuing relevance and efficacy.

Acknowledging that security is a fundamental need, shared by individuals, communities, businesses,and governments alike, and acknowledging the difficult security issues faced by companies operatingglobally, we recognise that security and respect for human rights can and should be consistent;

Understanding that governments have the primary responsibility to promote and protect humanrights and that all parties to a conflict are obliged to observe applicable international humanitarianlaw, we recognise that we share the common goal of promoting respect for human rights, particularlythose set forth in the Universal Declaration of Human Rights, and international humanitarian law;

Emphasising the importance of safeguarding the integrity of company personnel and property,companies recognise a commitment to act in a manner consistent with the laws of the countrieswithin which they are present, to be mindful of the highest applicable international standards, andto promote the observance of applicable international law enforcement principles (e.g. the UNCode of Conduct for Law Enforcement Officials and the UN Basic Principles on the Use of Forceand Firearms by Law Enforcement Officials), particularly with regard to the use of force;

Taking note of the effect that companies' activities may have on local communities, we recognisethe value of engaging with civil society, and host and home governments to contribute to the welfareof the local community while mitigating any potential for conflict where possible;

Understanding that useful, credible information is a vital component of security and human rights,we recognise the importance of sharing and understanding our respective experiences regarding,inter alia, best security practices and procedures, country human rights situations, and public andprivate security, subject to confidentiality constraints;

Acknowledging that home governments and multilateral institutions may, on occasion, assist hostgovernments with security sector reform, developing institutional capacities and strengtheningthe rule of law, we recognise the important role companies and civil society can play in supportingthese efforts;


Box 1 (continued)

We hereby express our support for the following voluntary principles regarding security and humanrights in the extractive sector, which fall into three categories: risk assessment, relations withpublic security and relations with private security.

Risk assessmentThe ability to assess accurately risks present in a company's operating environment is criticalto the security of personnel, local communities and assets; the success of the company's shortand long-term operations; and to the promotion and protection of human rights. In somecircumstances, this is relatively simple; in others, it is important to obtain extensive backgroundinformation from different sources; monitoring and adapting to changing, complex political,economic, law enforcement, military and social situations; and maintaining productive relationswith local communities and government officials.

security of personnel, local communities and assets; the success of the company's short andlong-term operations; and to the promotion and protection of human rights. In some circumstances,this is relatively simple; in others, it is important to obtain extensive background informationfrom different sources; monitoring and adapting to changing, complex political, economic, lawenforcement, military and social situations; and maintaining productive relations with localcommunities and government officials.

The quality of complicated risk assessments is largely dependent on the assembling of regularlyupdated, credible information from a broad range of perspectives – local and national governments,security firms, other companies, home governments, multilateral institutions and civil societyknowledgeable about local conditions. This information may be most effective when shared to thefullest extent possible (bearing in mind confidentiality considerations) between companies, concernedcivil society and governments.

Bearing in mind these general principles, we recognise that accurate, effective risk assessmentsshould consider the following factors:

Identification of security risks. Security risks can result from political, economic, civil or socialfactors. Moreover, certain personnel and assets may be at greater risk than others. Identificationof security risks allows a company to take measures to minimise risk and to assess whethercompany actions may heighten risk.

Potential for violence. Depending on the environment, violence can be widespread or limitedto particular regions, and it can develop with little or no warning. Civil society, home and hostgovernment representatives, and other sources should be consulted to identify risks presentedby the potential for violence. Risk assessments should examine patterns of violence in areas ofcompany operations for educational, predictive and preventative purposes.

Human rights records. Risk assessments should consider the available human rights recordsof public security forces, paramilitaries, local and national law enforcement, as well as thereputation of private security. Awareness of past abuses and allegations can help companies to


avoid recurrences as well as to promote accountability. Also, identification of the capability of theabove entities to respond to situations of violence in a lawful manner (i.e. consistent with applicableinternational standards) allows companies to develop appropriate measures in operatingenvironments.

Rule of law. Risk assessments should consider the local prosecuting authority and judiciary'scapacity to hold accountable those responsible for human rights abuses, and for those responsiblefor violations of international humanitarian law in a manner that respects the rights of the accused.

Conflict analysis. Identification of and understanding the root causes and nature of local conflicts,as well as the level of adherence to human rights and international humanitarian law standardsby key actors, can be instructive for the development of strategies for managing relations betweenthe company, local communities, company employees and their unions and host governments.Risk assessments should also consider the potential for future conflicts.

Equipment transfers. Where companies provide equipment (including lethal and non-lethalequipment) to public or private security, they should consider the risk of such transfers, any relevantexport licensing requirements, and the feasibility of measures to mitigate foreseeable negativeconsequences, including adequate controls to prevent misappropriation or diversion of equipmentwhich may lead to human rights abuses. In making risk assessments, companies should considerany relevant past incidents involving previous equipment transfers.

Interactions between companies and public securityAlthough governments have the primary role of maintaining law and order, security and respectfor human rights, companies have an interest in ensuring that actions taken by governments,particularly the actions of public security providers, are consistent with the protection and promotionof human rights. In cases where there is a need to supplement security provided by hostgovernments, companies may be required or expected to contribute to, or otherwise reimburse,the costs of protecting company facilities and personnel borne by public security. While publicsecurity is expected to act in a manner consistent with local and national laws as well as withhuman rights standards and international humanitarian law, within this context abuses maynevertheless occur.

In an effort to reduce the risk of such abuses and to promote respect for human rights generally,we have identified the following voluntary principles to guide relationships between companiesand public security regarding security provided to companies:

Security arrangementsCompanies should consult regularly with host governments and local communities about theimpact of their security arrangements on those communities.

Companies should communicate their policies regarding ethical conduct and human rightsto public security providers, and express their desire that security be provided in a mannerconsistent with those policies by personnel with adequate and effective training.


Box 1 (continued)

Companies should encourage host governments to permit making security arrangementstransparent and accessible to the public, subject to any overriding safety and security concerns.

Deployment and conductThe primary role of public security should be to maintain the rule of law, including safeguardinghuman rights and deterring acts that threaten company personnel and facilities. The type andnumber of public security forces deployed should be competent, appropriate and proportionalto the threat.

Equipment imports and exports should comply with all applicable law and regulations. Companiesthat provide equipment to public security should take all appropriate and lawful measures tomitigate any foreseeable negative consequences, including human rights abuses and violationsof international humanitarian law.

Companies should use their influence to promote the following principles with public security:(a) individuals credibly implicated in human rights abuses should not provide security servicesfor companies; (b) force should be used only when strictly necessary and to an extent proportionalto the threat; and (c) the rights of individuals should not be violated while exercising the right toexercise freedom of association and peaceful assembly, the right to engage in collective bargaining,or other related rights of company employees as recognised by the Universal Declaration of HumanRights and the ILO Declaration on Fundamental Principles and Rights at Work.

In cases where physical force is used by public security, such incidents should be reported to theappropriate authorities and to the company. Where force is used, medical aid should be providedto injured persons, including to offenders.

Consultation and adviceCompanies should hold structured meetings with public security on a regular basis to discusssecurity, human rights and related work-place safety issues. Companies should also consultregularly with other companies, host and home governments, and civil society to discuss securityand human rights. Where companies operating in the same region have common concerns, theyshould consider collectively raising those concerns with the host and home governments.

In their consultations with host governments, companies should take all appropriate measuresto promote observance of applicable international law enforcement principles, particularly thosereflected in the UN Code of Conduct for Law Enforcement Officials and the UN Basic Principleson the Use of Force and Firearms.

Companies should support efforts by governments, civil society and multilateral institutions toprovide human rights training and education for public security as well as their efforts to strengthenstate institutions to ensure accountability and respect for human rights.


Responses to human rights abusesCompanies should record and report any credible allegations of human rights abuses by publicsecurity in their areas of operation to appropriate host government authorities. Where appropriate,companies should urge investigation and that action be taken to prevent any recurrence.

Companies should actively monitor the status of investigations and press for their proper resolution.

Companies should, to the extent reasonable, monitor the use of equipment provided by the companyand to investigate properly situations in which such equipment is used in an inappropriate manner.

Every effort should be made to ensure that information used as the basis for allegations ofhuman rights abuses is credible and based on reliable evidence. The security and safety of sourcesshould be protected. Additional or more accurate information that may alter previous allegationsshould be made available as appropriate to concerned parties.

Interactions between companies and private securityWhere host governments are unable or unwilling to provide adequate security to protect a company'spersonnel or assets, it may be necessary to engage private security providers as a complementto public security. In this context, private security may have to coordinate with state forces,(law enforcement, in particular) to carry weapons and to consider the defensive local use of force.Given the risks associated with such activities, we recognise the following voluntary principlesto guide private security conduct:

Private security should observe the policies of the contracting company regarding ethical conductand human rights; the law and professional standards of the country in which they operate; emergingbest practices developed by industry, civil society, and governments; and promote the observanceof international humanitarian law.

Private security should maintain high levels of technical and professional proficiency, particularlywith regard to the local use of force and firearms.

Private security should act in a lawful manner. They should exercise restraint and caution in amanner consistent with applicable international guidelines regarding the local use of force, includingthe UN Principles on the Use of Force and Firearms by Law Enforcement Officials and the UNCode of Conduct for Law Enforcement Officials, as well as with emerging best practices developedby companies, civil society and governments.

Private security should have policies regarding appropriate conduct and the local use of force(e.g. rules of engagement). Practice under these policies should be capable of being monitoredby companies or, where appropriate, by independent third parties. Such monitoring shouldencompass detailed investigations into allegations of abusive or unlawful acts; the availabilityof disciplinary measures sufficient to prevent and deter; and procedures for reporting allegationsto relevant local law enforcement authorities when appropriate.


Box 1 (continued)

All allegations of human rights abuses by private security should be recorded. Credible allegationsshould be properly investigated. In those cases where allegations against private security providersare forwarded to the relevant law enforcement authorities, companies should actively monitor thestatus of investigations and press for their proper resolution.

Consistent with their function, private security should provide only preventative and defensiveservices and should not engage in activities exclusively the responsibility of state military or lawenforcement authorities. Companies should designate services, technology and equipment capableof offensive and defensive purposes as being for defensive use only.

Private security should (a) not employ individuals credibly implicated in human rights abuses toprovide security services; (b) use force only when strictly necessary and to an extent proportionalto the threat; and (c) not violate the rights of individuals while exercising the right to exercisefreedom of association and peaceful assembly, to engage in collective bargaining or other relatedrights of company employees as recognised by the Universal Declaration of Human Rights andthe ILO Declaration on Fundamental Principles and Rights at Work.

In cases where physical force is used, private security should properly investigate and report theincident to the company. Private security should refer the matter to local authorities and/or takedisciplinary action where appropriate. Where force is used, medical aid should be provided toinjured persons, including to offenders.

Private security should maintain the confidentiality of information obtained as a result of its positionas security provider, except where to do so would jeopardise the principles contained herein.

To minimise the risk that private security exceed their authority as providers of security, and topromote respect for human rights generally, we have developed the following additional voluntaryprinciples and guidelines:

Where appropriate, companies should include the principles outlined above as contractual provisionsin agreements with private security providers, and ensure that private security personnel areadequately trained to respect the rights of employees and the local community. To the extentpracticable, agreements between companies and private security should require investigationof unlawful or abusive behavior and appropriate disciplinary action. Agreements should also permittermination of the relationship by companies where there is credible evidence of unlawful orabusive behaviour by private security personnel.

Companies should consult and monitor private security providers to ensure they fulfil their obligationto provide security in a manner consistent with the principles outlined above. Where appropriate,companies should seek to employ private security providers that are representative of the localpopulation.


Companies should review the background of private security they intend to employ, particularlywith regard to the use of excessive force. Such reviews should include an assessment of previousservices provided to the host government, and whether these services raise concern about theprivate security firm's dual role as a private security provider and government contractor.

Companies should consult with other companies, home country officials, host country officials andcivil society regarding experiences with private security. Where appropriate and lawful, companiesshould facilitate the exchange of information about unlawful activity and abuses committed byprivate security providers.

Source: www.voluntaryprinciples.org


Resources

International conventions and voluntary standardsGeneva Conventions and Additional Protocols I and II.www.genevaconventions.org

International Convention for the Suppressionof the Financing of Terrorism.www1.umn.edu/humanrts/instree/financingterrorism.html

UN Code of Conduct for Law Enforcement Officials andBasic Principles on the Use of Force and Firearms by LawEnforcement Officials.www.uncjin.org/Standards/Conduct/conduct.html

UN Convention against the Recruitment, Use, Financingand Training of Mercenaries.www1.umn.edu/humanrts/instree/1989a.htm


Voluntary Principles on Security and Human Rights.www.voluntaryprinciples.org

WebsitesAmnesty International UK, Human Rights Guidelinesfor Companies. www.amnesty.org.uk/business/pubs/hrgc.shtml

Business and Human Rights Resource Centre,security and conflict page. www.business-humanrights.org/Categories/Issues/Security

Danish Centre for Human Rights Human RightsCompliance Assessment tool for companies.www.humanrightsbusiness.org/compliance_assessment.htm

Human Rights Watchwww.hrw.org/advocacy/corporations/index.htm

International Business Leaders Forum, conflictand security page.www.iblf.org/csr/csrwebassist.nsf/content/a1a2a3a4a5.html

London School of Economics, Centre for theStudy of Global Governance, oil and conflict page.www.lse.ac.uk/Depts/global/OtherProjects.htm

Section 4

Flashpoint Issue 8Human Rights

Flashpoint Issue 8Human Rights

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 8: Human Rights

The issueCompanies frequently find themselves operating in countries with poor human rights records.While there is not enough empirical evidence to support a direct, causative correlation betweencountries with poor human rights records and countries in conflict, the likelihood of these conditionsco-existing is high. A high incidence of human rights abuse is often a precursor to conflict and themost egregious abuses of human rights take place during violent conflict. Conflict, and evenpotential or pre-conflict, can affect many rights, such as:

• The right to life• The right to freedom of thought, conscience or religion• The right to own property• The right against forced displacement, plunder, pillage or profiteering• The right against torture and inhumane or degrading treatment• The right against arbitrary arrest and detention• The right to a fair trial• The right to freedom of expression• The right against discrimination• The right to free association and free assembly• The right to a minimum adequate standard of living.1

In a number of countries, companies are faced with significant legal and moral dilemmasrelating to human rights abuses:

• In Indonesia, oil companies operate in areas where armed opposition groups are seeking independence and where conflict with the state has led to human rights abuses.

• In Nigeria’s oil-rich Delta province, companies operate in an environment where decadesof economic neglect have angered local communities who now target them, and again wherestate response has involved human rights abuses.

• In Angola, the diamond industry has been accused until recently of trading with rebel groups who committed human rights abuses during the civil war.

• In Colombia, rebels regularly attack pipelines owned and managed by oil companies, whom they accuse of cooperating with unscrupulous state or paramilitary forces and view as

legitimate targets.

Companies that try to ignore these complex features in their operating contexts by adoptinga ‘business as usual’ approach have suffered widespread condemnation by civil society groups,sometimes culminating in consumer boycotts or lawsuits. Increasingly, companies are beingcalled on to respect international human rights and humanitarian law in all areas of their operations.

The business caseThere is a strong business case for companies to respect human rights, particularly in conflict-prone areas:

Reputation. When a company operates in a conflict-risk state, it becomes a lightning rod for activistgroups. Neglecting human rights can have consequences on reputation locally and internationally,including repercussions on share price and the capacity to raise capital, win further contracts,maintain good security on the ground and hire the best staff.

1. See Annex for more detail on the relevant international instruments.


Boycott. NGOs have called for boycotts of companies’ products and services. If the company hasa high-street presence, for example through petrol pumps or jewellery retailing, its outlets canbe picketed. If the company has no downstream operations, boycotts can be waged by placingpressure on ethical investor groups, trade unions, credit-rating agencies and institutional investors.

Shareholder pressure. Some activist groups buy shares, introducing hostile resolutions atannual general meetings. When allied with a sizeable group of other investors, this kind of campaigncan have a significant impact on the company’s public reputation, affecting share price. Sincethe campaign against apartheid, activist pension funds, mutual funds, ethical funds, trade unionsand civil society organisations, have learned to use shareholder pressure – through resolutions,votes and demands for divestment – which forms another risk for companies.

Cost of capital and management time. A drop in a company’s share price can have consequenceson its ability to raise further capital. If a company does not pay adequate attention to human rightsconcerns before investing, or fails to reassess its portfolio when conflict ignites in its operatingenvironment, it may face significantly increased costs in the time devoted by senior managementor legal advisors in devising and implementing an effective counter-strategy.

Legal risks. Increasingly, activist groups, victims’ groups and tort lawyers are using the law,particularly the Alien Tort Claims Act (ATCA) in the United States, to sue companies for complicityin human rights abuses. In addition to the cost of management time and legal representation,which can run into millions of dollars, there is a genuine possibility of an adverse judgment withserious repercussions in determining a company’s liability and assessing punitive damages.

Incipient legislation. Reports by the UN Expert Panel on natural resource exploitation in theDemocratic Republic of Congo (DRC) have been a wake-up call for many Western governmentswhich are now looking at ways to strengthen their legislative frameworks.2 New voluntary initiativesthat could pave the way for longer-term legislative developments include the UN Draft Norms onthe Responsibilities of Transnational Corporations with regard to Human Rights currently beingconsidered by the UN High Commission for Human Rights. The initiative offers companies acomprehensive set of human rights responsibilities within their spheres of influence that assistsin clarifying their roles.3 Efforts to strengthen the OECD Guidelines for Multinational Enterprisesas they relate to countries with weak governance,4 as well as the UN Global Compact (the first twoprinciples of which call for companies to respect human rights law and ensure that they are notcomplicit in human rights abuses), are also indications of this search for clearer rules.

Standard assumptions and responsesSince the mid-1990s, many companies have developed policies and standards on human rights,but full implementation has been hampered by a number of ongoing assumptions and practices:

It is not the business of companies to protect human rights. Many companies believe that theyshould respect human rights, but voluntarily. Legal responsibility for human rights lies with thestate and companies should not interfere in sovereign or internal political affairs. Companies’responsibilities are wealth creation, the payment of taxes and, where feasible, the generation ofgood works through corporate citizenship, or corporate social responsibility. While international

2. See the reports of the Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealthof the Democratic Republic of Congo; April 2001; October 2002; and October 2003. All texts available atwww.globalpolicy.org/security/issues/kongidx.htm#links

3. At the time of going to print, debate at the OHCHR as to the future status of this document is ongoing – with clarification possiblydue to emerge from the 61st session of the Commission scheduled for April 2005. U.N. Doc. E/CN.4/Sub.2/2003/12/Rev.2 (2003).See also Amnesty International (2004) The UN Human Rights Norms For Business: Towards Legal Accountability.

4. See www.oecd.org/document/7/0,2340,en_2649_34889_34070151_1_1_1_1,00.html


human rights law does indeed locate primary responsibility for protecting human rights with thestate, this does not help companies to meet the moral dilemmas they may encounter in certaincountries. Limited interpretation of the law ignores the reality that companies have come undersevere pressure when operating in the vicinity of human rights abuses.

Human rights issues are best handled by external relations departments. Companies haveresponded to the human rights challenge by drawing up voluntary codes of conduct that guideperformance in their own operations and within their spheres of influence. The codes have beendrafted in response to concerns in civil society about the role, activities and impact of companieson the human rights of their workers and communities in their operational areas. One problemrelating to this has been the tendency for such codes to be developed at headquarters level – thelevel at which reputational, financial and legal risks are felt most keenly – while management ofhuman rights issues takes place on the ground. There is, therefore, commonly a disconnect betweenheadquarters aspirations and operational experience that opens space for ineffective strategy.Typically, external affairs specialists at headquarters level are called in reactively to cope withhuman rights crises, but managing human rights situations effectively requires a more integratedapproach. These institutional complexities hamper an effective response to crises, and are indicativeof an overall failure to deal pro-actively with the issue.

Key conflict issuesThere are various ways in which company practices relating to human rights can exacerbatethe incidence of conflict:

Security arrangements. In zones of conflict, the most direct exposure a company has to a potentialhuman rights crisis is through its security arrangements. Who provides security? What methodsdo they use? What weapons are used? Are security personnel trained to ensure they use theirequipment lawfully? What is their prior record? Companies have a legitimate right to protectstaff and assets, but in several instances the security forces the companies employ are poorlytrained and equipped, and not familiar with international human rights standards. This canresult in a disproportionate use of force and human rights violations in which the company quicklybecomes mired (also see Flashpoint Issue 7: Security Arrangements).

Labour practices. Recruitment policy is another area where company actions can have negativerepercussions on human rights. An operational requirement in Burma is the need to take on adomestic partner, usually an arm of the government. Burma has a particularly egregious humanrights record and credible reports allege that its military used forced labour to build an energypipeline in the 1990s. A US energy company recently settled an ATCA case out of court, pledgingto make financial contributions to support communities around their project area in response tocharges that it had been complicit in slavery.

Building and operating oil exploration wells, refineries and mines requires a highly skilled workforceand companies find it difficult to hire local people for senior positions given low levels of technicalexpertise. In addition, they may experience political pressure to provide jobs to ethnic groupsassociated with the government. Companies run the risk of violating the right against discriminationthrough recruitment practices, fueling local competition and violence.


Community relations. When companies feel obliged to provide amenities and services tocommunities around their operations, especially in weakly governed states, they can inadvertentlycreate situations that lead to human rights abuses. This happens when companies build schools,clinics and canals for example, but limit their engagement to the needs of communities closestto their facilities. This deprives other communities and breeds grievances that can lead to militantyouth targeting a company’s assets or committing human rights abuses. Widespread perceptionsthat a company benefits from the region, but is not doing enough for it, or for a particular groupliving there, can be sufficient for members of some groups to turn to violence. Lack of transparencyabout the distribution of the benefits – from employment to development projects – can contributeto feelings of suspicion and grievance. In volatile situations, these dynamics can lead to violence(see Flashpoint Issue 5: Social Investment).

From good intention to human rights abuse1. A company sees widespread poverty in the community and provides a public good

(a school or clinic) that the state does not provide2. The company decides to provide the service to five villages immediately around its operations3. Villages beyond that perimeter feel denied and develop grievances4. These villages make demands on the company that it fails to provide5. Militant youths in the village target the company by sabotaging operations, abducting

officials or damaging infrastructure6. The company turns to the state to provide security forces to protect its installations7. The forces are poorly equipped so the company provides resources to acquire equipment8. The security forces commit human rights abuses, implicating the company.

Complicity. Since the UN Expert Panels reported on links between the exploitation of naturalresources and conflict in the DRC, businesses have started to think carefully about laws relatingto complicity, plunder, the doctrines of ‘known-and-should-have-known’, and aiding and abetting.Defining complicity is a contentious issue in human rights law, but even in the absence of a legallybinding definition, companies must be careful if they have business relationships that bring theminto proximity with perpetrators of human rights abuses; if their operations are close to the siteof human rights abuses; if they are in a relationship which could be defined as a ‘joint criminalconspiracy’; or otherwise benefit from plunder, pillage or profiteering. In zones of conflict, thecloser the relationship, the louder the alarm bells. Clearly, this has implications at the level ofsupply-chain management, requiring that companies be fully apprised of the links of those fromwhom they purchase to human rights abuses or war crimes.5

Options and alternatives1. Recognise and adhere to the law. Recent research shows that voluntary initiatives, thoughwelcome, are not sufficient to make the environment safe for human rights.6 There has been agrowing recognition in recent years of the need to regulate corporate activity from a human rightsperspective. While voluntary approaches to human rights are a starting point, forward-thinkingcompanies should be looking ahead.

2. Take adequate steps not to aid or abet human rights violations or abuses by state or non-stateactors. In practical terms, companies should understand and mitigate their own scope forcomplicity through their conduct, or that of their partners suspected of committing abuses, including

5. See www.fafo.no/liabilities/index.htm6. See Resources.


plunder, forced labour and discrimination. The CSBP Screening Tool, M-CRIA and P-CRIA aredesigned to help determine this.

3. Conduct due diligence and human rights assessment. Understanding the human rights contextand the likely impact of operations on different human rights challenges should be a key part ofdue diligence and assessment prior to engaging, and be regularly updated. The method shouldtake into account the fact that it is difficult to access freely expressed opinion in many countriesbecause of a systematic pattern of violation by the state, or it may be difficult to get the opinion ofspecific groups, such as women or minority groups. Again, CSBP tools are useful, and specialisthuman rights assessment tools are also emerging.7

4. Take responsibility for security arrangements. The UN has two codes of conduct – one on theuse of firearms, another on the use of force by law enforcement officials – that define responsibleconduct.8 Companies should also sign up to and implement the Voluntary Principles for Securityand Human Rights (see Flashpoint Issue 7: Security Arrangements).9

5. Develop indicators and benchmarks for managing human rights challenges. To close the gapbetween headquarters policies and on-the-ground challenges, and to ensure businesses operatein a manner consistent with human rights responsibilities, companies are beginning to developindicators and other measurable benchmarks. This will enable performance on the ground tobe measured in this area, as well as on production targets. These can include:

• Verifying the human rights record of security forces• Providing human rights training for staff• Monitoring the human rights situation in the region• Reporting specific problematic incidents to the relevant authorities• Taking steps to ensure that funds or facilities provided to, or built for, security forces

are used for their intended purpose• Ensuring that the response time to alert top management about security breaches

or other human rights crises is minimal• Making sure all policies regarding payments to communities are transparent• Devising non-discriminatory recruitment and compensation policies.

7. Danish Institute of Human Rights, Human Rights Compliance Assessment Tool. www.humanrightsbusiness.org/compliance_assessment.htm

8. These are the United Nations Code of Conduct for Law Enforcement Officials of 1979, adopted by General Assembly resolution34/169 of 17 December 1979, and the Basic Principles on the Use of Force and Firearms by Law Enforcement Officials, adoptedby the Eighth United Nations Congress on the Prevention of Crime and the Treatment of Offenders, Havana, Cuba, 27 Augustto 7 September 1990

9. www.voluntaryprinciples.org


The UN Charter of 1945 and the Universal Declaration of Human Rights (UDHR) of 1948 spelledout a number of important human rights obligations. In many instances, these obligations havebecome customary international law, binding on all states. Two major international covenants,signed in 1966 and ratified in 1976, clarify the obligations of states: the International Covenanton Economic, Social and Cultural Rights was adopted and opened for signature, ratification andaccession by General Assembly resolution 2200A (XXI) of 16 December 1966. It entered into forceon 3 Jan 1976. Likewise, the International Covenant on Civil and Political Rights (ICCPR) was passedin the UN General Assembly as per resolution 2200A (XXI), also in 1966, entering into force on23 March 1976. Other major human rights conventions include: the Convention against Tortureand Other Cruel, Inhuman or Degrading Treatment or Punishment (CAT); the Optional Protocolto the Convention on the Rights of the Child on the Involvement of Children in Armed Conflict;the Convention on the Elimination of All Forms of Discrimination against Women; the SecondOptional Protocol to the ICCPR, aiming at the abolition of the death penalty; and the InternationalConvention on the Protection of the Rights of All Migrant Workers and Members of their Families.Similarly, there is the tripartite declaration of the International Labour Organisation, whichincludes the core conventions applicable for workplace concerns: Freedom of Association andCollective Bargaining (Conv. 87 and 98); Elimination of all forms of Forced or Compulsory Labour(Conv. 29 and 105); Non-Discrimination in Employment and Occupation (Conv. 100 and 111);and Minimum Age (Conv. 138) and Elimination of Worst Forms of Child Labour (Conv. 182).

Laws of war are governed by the Hague Convention of 1899 and 1907, and the 1945 Charter ofthe International Military Tribunal at Nuremburg that defined war crimes as ‘violations of the lawsor customs of war’. These included murder, ill-treatment or deportation of civilians in occupiedterritory; murder or ill-treatment of prisoners of war; killing of hostages; plunder of public orprivate property; wanton destruction of municipalities; and unnecessary military devastation.The Geneva Conventions of 1949 codify war crimes as grave breaches of the four conventions.These include willful killing, torture or inhuman treatment, including medical experiments,willfully causing great suffering or serious injury to body or health; extensive destruction andappropriation of property not justified by military necessity and carried out unlawfully and wantonly;compelling a prisoner of war or civilian to serve in the forces of the hostile power; willfully deprivinga prisoner of war or protected civilian of the rights of a fair and regular trial; unlawful deportationor transfer of a protected civilian; unlawful confinement of a protected civilian; and the taking ofhostages. Additional Protocol I of 1977 expands the protection of the Geneva Conventions forinternational conflicts to include as grave breaches certain medical experimentation; makingcivilians and non-defended localities the object, or inevitable victims, of attack; the perfidioususe of the Red Cross or Red Crescent emblem; the transfer of an occupying power of partsof its population to occupied territory; unjustified delays in repatriating POWs; apartheid;the attack on historic monuments; and depriving protected persons of a fair trial. Under the GenevaConventions and Additional Protocol I, states must prosecute persons accused of grave breachesor hand them over to a state willing to do so.

Annex

8

Resources

International conventions and voluntary standardsGlobal Sullivan Principles.www.globalsullivanprinciples.org/principles.htm

OECD Guidelines for Multinational Enterprises.www.oecd.org/document/28/0,2340,en_2649_34889_2397532_1_1_1_1,00.html

UN Global Compact. www.unglobalcompact.org

UN legal documents on human rights are available at:www.hrweb.org/legal/undocs.html#UDHR


Voluntary Principles on Security and Human Rights.www.voluntaryprinciples.org

WebsitesAmnesty International UK, business group.www.amnesty.org.uk/business/

Amnesty International USA, business and human rights page.www.amnestyusa.org/business/index.do

Business and Human Rights resource centre.www.business-humanrights.org/Home

Fafo AIS. www.fafo.no/liabilities/index.htm

Fund for Peace Human Rights and Business Round Table.www.fundforpeace.org/programs/hrbrt/hrbrt.php

Human Rights Watch. www.hrw.org/doc/?t=corporations_extract

International Business Leaders Forum.www.iblf.org/csr/csrwebassist.nsf/content/a1a2a3.html

Office of the UN High Commissioner for Human Rights, businesspage. www.ohchr.org/issues/globalization/business.htm

Other resourcesAmnesty International (2004) ‘Nigeria: Are Human Rights InThe Pipeline?’ (London: Amnesty International).web.amnesty.org/library/Index/ENGAFR440202004?open&of=ENG-NGA

Christian Aid (2004) ‘Behind the Mask: The Real Face of CorporateSocial Responsibility’ (London: Christian Aid). www.christian-aid.org.uk/indepth/0401csr/aid.org.uk/indepth/0401csr/.

Danish Institute of Human Rights, Human Rights ComplianceAssessment Tool.www.humanrightsbusiness.org/compliance_assessment.htm

Handelsman, S. (2002) ‘Human Rights in the Minerals Industry’.Mining, Minerals and Sustainable Development, no.9.

Human Rights Watch (1999) ‘The Price of Oil: CorporateResponsibility and Human Rights in Nigeria’s Oil ProducingCommunities’ (London: Human Rights Watch).

IBLF (2002) Human Rights – Is It Any of Your Business?(London: International Business Leaders Forum and AmnestyInternational UK).www.iblf.org/csr/csrwebassist.nsf/content/f1d2a3a4c5.html

Parvlevliet, M. (2002) ‘Bridging the Divide: Exploring theRelationship between Human Rights and Conflict Management’Track Two vol. 11/1 (Cape Town: Centre for Conflict Resolution).

Petrasek, D. (2002) ‘Beyond Voluntarism: Human Rights andthe Developing International Legal Obligations of Companies’(Geneva: International Council for Human Rights Policy).

Sullivan, R. (ed) (2004) Business and Human Rights: Optionsand Dilemmas (London: Greenleaf).

UN Global Compact and OHCHR (2004) Embedding HumanRights in Business Practice (New York and Geneva: UNDepartment of Public Information).

Section 4

Flashpoint Issue 9Corruption and Transparency

Flashpoint Issue 9Corruption and Transparency

2 Conflict-Sensitive Business Practice: Guidance for Extractive IndustriesFlashpoint Issue 9: Corruption and Transparency

The issueRevenue from extractive industry investment represents one of the most significant forms of foreigninvestment across the developing world, making its way to governments in the form of taxes, fees,royalties and payments for access to, and extraction of, natural resources. These funds shouldand could promote equitable and sustainable development, but governments and the otherinstitutions that manage them are often not accountable to their citizens. Lack of transparencyand accountability facilitate embezzlement, corruption and misappropriation.

Companies may see their legitimate revenues squandered in this way and find themselves opento accusations of complicity with corruption. Corruption and poor governance at national and locallevels can be major contributing factors to conflict, leading to disaffection among population groupsexcluded from a share in the country’s wealth, and providing a source of revenue for armed elites.In such contexts, domestic politics can be reduced to a struggle between different constituenciesover access to resource rents. This ‘rentier’ model of state behaviour is inherently unstable sincethe competing groups may resort to violence. While natural resource wealth cannot be said to bethe only source of conflict in a specific country, it is clear that the mismanagement of those resourcescan aggravate existing political, social or other grievances, and heighten the risk of conflict.

The business caseThere is little value to international companies in having their legitimate payments to governmentsused in this way, since it leads to social divisiveness and an instability that threatens their long-term operational environment, with associated risks to reputation. Or, in the words of a jointstatement issued in 2003 by 57 major North American, European and South African investmenthouses (managing US$6.9 trillion in funds and holding significant stakes in all the main internationaloil companies):

Legitimate, but undisclosed, payments to governments may be accused of contributing to the conditionsunder which corruption can thrive. This is a significant business risk, making companies vulnerableto accusations of complicity in corrupt behaviour, impairing their local and global ‘licence to operate’,rendering them vulnerable to local conflict and insecurity, and possibly compromising their long-termcommercial prospects in these markets.1

In addition to reputational threats, an opaque financial environment allows unfair competitionfrom unscrupulous rivals who may pay bribes or backhanders for resource access. As the Enronand similar scandals demonstrated, a company that manages its finances in a non-transparentway poses a clear risk to the interests of its investors. Moreover, using corrupt means to win futurecontacts leaves a company subject to ongoing pressure thereafter, a challenge faced by Totalwhich inherited the liabilities of French state oil company Elf Aquitaine in countries such as CongoBrazzaville. Disclosure of revenue flows to governments could have partly prevented a recentspate of international corruption scandals involving oil companies in Angola, Congo Brazzaville,Equatorial Guinea, Gabon and Iran.

Corruption and bribe paying at the local level also imposes business costs. First, it is illegalunder the OECD Convention Combating Bribery of Foreign Public Officials, and has associatedreputational and legal risks. Second, corrupt relationships between companies and local officialsreinforce mistrust within local communities and perpetuate poor governance and the likelihoodof instability in the immediate operating environment.

1. Joint statement by ISIS Asset Management et al. 17 June 2003, revised February 2004. Investors’ Statement on Transparencyin the Extractives Sector. www.insightinvestment.com/Documents/ responsibility/eiti_investor_statement.pdf


Standard assumptions and responsesUntil recently, most companies viewed the promotion of greater transparency as the soleresponsibility of host-country governments. However, as a result of advocacy campaigns andinternational initiatives geared towards promoting more positive impacts from extractive industryinvestment in developing countries, it is now accepted that a lack of financial transparency requirescompanies to ‘publish what they pay’ to governments; governments to publish what they receivefrom companies; and a process in which civil society and international organisations can comparethese disclosures and investigate discrepancies. This is the approach embodied in the ExtractiveIndustry Transparency Initiative (EITI) launched by UK Prime Minister Tony Blair in June 2003.The EITI has received broad support from major international companies and an increasing numberof governments and NGOs, although significant disputes about its operational detail still needto be resolved.

With regard to local bribery and corruption, many companies have developed strict internal standardson corporate governance and on corruption in operations since the introduction of the OECDConvention in 1997, and other OECD integrity instruments also during the 1990s. Most recently,the UN adopted a Convention against Corruption, and the UN Global Compact reflected this byadopting a tenth principle on the subject.2

Despite this mind-shift with regard to tackling grand corruption through improved transparency,and petty corruption at the local level, efforts to translate codes of conduct and policy statementsinto action on the ground have been poor, in part because of certain persistent assumptions:

Operational realities require compromise on principles of transparency and anti-corruption.Most companies are party to contracts with host-country governments that contain gagging clausesthat prevent financial information from being publicly disclosed without government permission.They feel inhibited from finding creative ways to overcome these constraints. Companies continueto assume that bribe paying is simply part of doing business in a developing country. There arestill several instances each year of bribery scandals involving major companies.

It is competitively disadvantageous to disclose information on payments to governmentsunilaterally. The risk a company takes by playing by the rules is that others fail to follow suit,leaving less scrupulous operators to take advantage. One company’s figures represent only afraction of all revenue flows to a government. It is argued that it will only be possible to obtaina complete picture of government earnings in a given country when all companies disclose atthe same time and in a comparable format. Disclosure, therefore, is only possible after a levelplaying field has been established that guarantees competitiveness and existing contractualagreements. The EITI takes this approach into account, but companies still have a role to playby using their good offices to advance improved practice in potential host countries.

Transparency over payments would impose higher costs in terms of setting up additionalaccounting procedures. In fact, companies already have the necessary information in theirgroup accounts to prepare annual financial statements. Though complicated, company interactionswith host governments are not unfathomable and a few simple reporting rules would capturemost company and government interactions. Much of the work on deciding who should report,what should be reported and when it should be reported has already been finalised under theauspices of the EITI.

2. See www.unodc.org/pdf/crime/convention_ corruption/signing/Convention-e.pdf and www.unglobalcompact.org


Key conflict issuesThe mere presence of natural resources in a developing country does not automatically equateto conflict and corruption. It is the governance structures surrounding the management of suchindustries that determine the development impact. However, the large and sustained flow ofrevenues from extractive industries has clearly been a driver of conflict in many of the world’sworst-affected countries. The fight for access to, and control of, resource-rich areas by rebelgroups or different ethnic, religious and social factions has devastated these countries, andundermined efforts to alleviate poverty and stabilise economies.

Undisclosed payments by foreign companies and revenues to the Angolan government from theoil and diamond industries aided and abetted the country's devastating civil war. Angola receivesup to 90 per cent of its state income from oil production. Since much of this revenue has been –and continues to be – misappropriated because of the lack of transparency and accountability,companies cannot absolve themselves from this direct causal relationship without full disclosureof payments. This does not mean that all companies engage in bribery and state looting in Angolaand other resource-dependent and corrupt countries. It means that more effort must be made toopen up company and government accounts.

Corporate and government entanglement. Recent grand-scale corruption scandals in Africa andCentral Asia demonstrate that revenue transparency is not only needed for the sake of developingcountries, but also supports the interests of companies by helping to prevent bribery and promotebetter corporate governance.

Misuse of company funds by employees of the French oil company Elf Aquitaine (now mergedwith Total) resulted in the conviction of 30 former senior executives in November 2003. The trialrevealed that the executives, unconstrained by transparency requirements in the countries inwhich they operated, had for many years paid vast sums in bribes to politicians in several Africancountries, including Angola. They also enriched themselves at the company’s expense, siphoningoff commissions into secret bank accounts, buying multimillion-dollar properties and jewellery,and embezzling money for divorce and alimony fees.

Bribery. According to Transparency International’s Bribe Payers’ Index, the petroleum andmining sectors are the third and fourth most likely sectors in which government officials extortor accept bribes. The three main reasons are political pressure. commercial pressure andfinancial pressure (for example, differential tax rates). The laxity of laws and regulations isalso a significant factor, as are the low salaries of government officials in developing countries.Bribery and the lack of financial transparency over legitimate revenue flows to governmentsdirectly exacerbate corruption and conflict. The key difference is that paying bribes for favourabletreatment in contract procurement (or fees extracted by extortion) is illegal in the many developedjurisdictions in which companies are registered and listed on stock exchanges. However, thereis often a grey area between what can be considered legitimate payments to governments andbribes. Bribe paying to local public officials is also illegal, but at times companies exploit thegrey area of defining what is a bribe. Engaging in corrupt relationships with local officials cancontribute to undermining development and damage a company’s community relations.


Provoking grievances at the local level. Since company payments generally flow to stategovernments in capitals, local communities may feel marginalised and adversely compensatedfor the impact of a company’s operations on, or near, their territory. Feelings of resentmentcan worsen company relations with local communities and lead to civil unrest. Local citizensmay air their grievances against the company through protest or violence. Companies operatingin unstable and volatile countries are at times faced with ransom demands and extortion fromrebel groups in the host community. Company staff may be directly targeted though more oftenit is the actual oil fields, pipelines or mines that are most vulnerable. In these circumstances,companies often have no choice but to succumb to demands, albeit illegally, in order to ensurethe security of their operations and personnel. Some companies recruit their own security servicesfor protection. Payments to these groups are categorised as ‘off-the-book’ transactions, therebyevading scrutiny. This simply perpetuates a cycle of violence and mistrust within host communities,damaging a company’s reputation and further alienating people from their governments.

Revenue transparency – a cause for further conflict? In politically unstable countries, companiesmay feel that the disclosure of revenues could in fact provoke greater conflict by contributingto higher expectations and increased activism by local citizens, who may turn against theirgovernment, or fight among themselves about how the money should be spent. Transparencyof payments and revenues is a mechanism that allows local citizens and other observers to trackhow such incomes are spent through national budgets. It is difficult to predict whether publishingrevenue data would ignite further conflict among already marginalised peoples or lead to violence.Any potentially adverse impact of publication could be mitigated by a clear strategy to providecivil society organisations with the necessary tools to interpret the data and manage its nationwidedissemination.

Options and alternativesTransparency allows citizens and other observers to scrutinise the management and distributionof resource revenues. If financial flows in resource industries are opened to greater scrutiny, thiscan help close down the channelling of funds to rebel groups, militants and terrorists who profitfrom the lack of transparency. In turn, the chance of civil war breaking out – or re-igniting – overcontrol of natural resource revenues in such countries is greatly reduced. Institutional capacitybuilding to provide governments with the means to manage revenues for the benefit of a morediversified economy and a better educated civil service is also essential.

Revenue and contract transparency is fundamental to the effectiveness of any anti-corruptionand conflict prevention strategy in resource-dependent developing and transitional countries.Revenue transparency and committment to codes countering all forms of bribery will not curbcorruption completely, nor prevent civil conflict outright. They are nevertheless important measuresfor companies to take, and it is in their best interests to ensure that natural resource industriesare managed accountably and that opportunities for corrupt behaviour by extractive industrymembers and government officials are limited.

Some companies have made considerable progress in trying to check both grand and local-levelcorruption, including moving towards enhanced transparency of payments. Given the growinginternational consensus that transparency is integral for good governance, corporate socialresponsibility and development for poor but energy-rich countries, it is in companies’ best intereststo take a pro-active approach to the issue and get involved in working towards the necessaryreforms by:


1. Making a clear and unequivocal commitment to transparency of all revenue flows togovernments. This should apply to every country in which a company operates and involvepublishing figures in a clear and accessible format. Some companies already publish amountspaid as ‘signature bonuses’ to governments on winning new concessions, or are negotiatingexemptions from a blanket waiver on disclosure. Others have gone further: Talisman Energyprovides a breakdown on its website and in company reports of overall fiscal contributions to eachcountry in which it operates. Talisman was prompted to do this following allegations that therevenue it paid to the Sudanese government was used to buy arms for the civil war. Communicatingintentions and information about payments clearly and meaningfully within local communities,media and industry groups helps ensure that information disclosure fulfils its objective of raisingawareness and accountability.

2. Cooperating with other companies to form effective industry lobbies. The anxiety that disclosureof payments or any other activity that promotes transparency will cause a company to lose outto competitors can be overcome by improved industry cooperation at the national and internationallevel. In some cases, companies have formed an effective pro-transparency lobby (as in Azerbaijan);in others, they have not, and paid the price (Equatorial Guinea).

3. Highlighting commitments to transparency and the non-payment of bribes. Sending a strongsignal on this issue to host governments and others through publication of business principleson the company website and in annual reports is also an important step, provided it is backedup in practice.

4. Ensuring that all subsidiaries adhere to company policy on transparency of payments.This should apply to contract procurement processes through internal governance andmanagement structures, and active encouragement to business partners to follow suit.

5. Engaging constructively in multi-stakeholder processes, such as the EITI, at both nationaland international levels. This includes working collaboratively with home and host governments,IFIs, investors, civil society organisations, industry representative associations and other companies,including state-owned enterprises, toward ensuring that such initiatives evolve into meaningfuland accountable standards of practice.

6. Assisting in the development of a reporting framework. Reporting frameworks need to becomprehensive and consistent for companies at a country level, and allow for proper analysisby civil society organisations and other observers.

7. Supporting the implementation of ‘integrity pacts’. These ensure fair and transparent contractprocurement in the extractive industries.

8. Devising methods of strengthening democratic institutions in their spheres of influence.Helping to provide a secure domestic environment in which citizens can question their leadersand air grievances about the management of national resource is critical in resource-rich developingcountries. Companies can support relevant initiatives as part of their social investment programmesto complement core business and policy engagement activities.


Resources

International conventions and voluntary standardsCouncil of Europe Conventions on Corruption.www.coe.int

IMF Code of Good Practices on Fiscal Transparency.www.imf.org/external/np/fad/trans/code.htm

International Chamber of Commerce Extortion and Briberyin International Business Transactions.www.iccwbo.org/home/statements_rules/rules/1999/briberydoc99.asp

OAS Inter-American Convention Against Corruption.www.oas.org/juridico/english/Treaties/b-58.html

OECD Convention Combating Bribery of Public Officials, andintegrity instruments.www.oecd.org/department/0,2688,en_2649_34855_1_1_1_1_1,00.html.

OECD Guidelines for Multinational Enterprises.www.oecd.org/dataoecd/56/36/1922428.pdf

Transparency International Business Principlesfor Countering Bribery.www.transparency.org/building_coalitions/private_sector/business_principles.html

Transparency International Integrity Pacts.www.transparency.org/integrity_pact/index.html

UN Global Compact. www.unglobalcompact.org

UN Convention against Corruption.www.unodc.org/pdf/crime/convention_corruption/signing/Convention-e.pdf

Wolfsberg Principles. www.wolfsberg-principles.com

WebsitesCatholic Relief Services. www.catholicrelief.org

Christian Aid. www.christianaid.org.uk

Eldis. www.eldis.org/csr/extractive.htm

Extractive Industries Transparency Initiative.www.eitransparency.org

Global Reporting Initiative. www.globalreporting.org

Global Witness. www.globalwitness.org

Open Society Institute. www.soros.org

Publish What You Pay. www.publishwhatyoupay.org

Transparency International. www.transparency.org

Other resourcesBannon, I. and P. Collier (eds.) (2003) Natural Resources andViolent Conflict: Issues and Actions (Washington, D.C.: WorldBank).

Karl, T. L. (1997) The Paradox of Plenty: Oil Booms and Petro-States. (Berkeley and Los Angeles: University of California Press).

Marshall, I. (2001) ‘A Survey of Corruption Issues in the Miningand Minerals Sector.’ Mining, Minerals and SustainableDevelopment, November 2001, No. 15.

Swanson, P. (2002) Fuelling Conflicts: The Oil Industry and ArmedConflict (Oslo: Fafo AIS).